Citigroup has considered moving its stock research analysts back to its institutional securities business five years after they were separated under pressure from regulators investigating Wall Street conflicts of interest.
Some top executives have opposed the move, which could revive fears about bankers' influence over research on clients.
Chief executive Chuck Prince played a leading role in negotiating Wall Street's settlement with regulators and has sought to improve Citi's "ethical" culture. Under the original plan, equity research would have moved into what will now be a new institutional clients division, created in a shake-up announced on Thursday, headed by Vikram Pandit.
The reshuffle triggered the departure of Tom Maheras, Citi's capital markets chief, after Mr Prince sacked Randy Barker, a co-head of its fixed-income business, after Mr Maheras tried to resist the move.
The shake-up followed Citi's admission last week that it had suffered $3.3bn of write downs and losses in the credit market turmoil.
One insider said the current proposal was for research to be a joint venture between Smith Barney, Citi's private client business, and its institutional equities arm.
All existing safeguards would remain in place and bankers would have no influence over research, the insider said.
Under former chief executive Sandy Weill, Citi was a target of the campaign by Eliot Spitzer, then New York state attorney-general, to stamp out Wall Street conflicts of interest. Part of Mr Spitzer's investigation concerned the role of Mr Weill in determining an AT&T stock rating.
Mr Weill acknowledged asking Citi analyst Jack Grubman to "take a fresh look" at the company. In the run-up to the settlement, in which Citi paid $400m, Mr Weill said research would move to Smith Barney to "help assure that all equity research at Citigroup will be independent of corporate and investment banking and underwriting". Citi declined to comment.
The shares were down 0.9 per cent at $47.87 at the close in New York.
credited by: ft.com
2007-10-13
Standard Life talks to Swiss Re on joint bid
Standard Life is talking to Swiss Re about a possible joint approach for Resolution Life.
The move comes as David Nish, finance director of Standard Life, is emerging as a strong contender to succeed Sandy Crombie, the company's chief executive, who turns 60 in February 2009.
Standard Life has been under pressure to reveal its intentions towards Resolution, a specialist investor in closed life funds, since Resolution rejected a £4.5bn approach from Pearl group, an arch rival controlled by Hugh Osmond.
Standard Life held talks in the summer about a joint approach for Resolution with Pearl. However, Mr Osmond revealed this week that he had agreed a deal with Royal London, which would see the mutual pick up some of Resolution's assets if his offer - below the market price - is successful.
In spite of the emerging interest, there is no guarantee that Standard and Swiss Re will make a move on Resolution. Standard Life, which has said it is considering a cash-and-shares offer for Resolution, could walk away at any time. Standard Life would only say that it continued to consider its options on Friday. Swiss Re declined to comment.
The Takeover Panel could soon set a deadline for potential bidders to show their hands, possibly about 10 days before shareholders in Resolution and Friends Provident are due to vote on a planned £8bn merger.
Shares in Resolution rose 16½p to 708½p on Friday, well ahead of Mr Osmond's 660p-a-share approach.
credited by: ft.com
The move comes as David Nish, finance director of Standard Life, is emerging as a strong contender to succeed Sandy Crombie, the company's chief executive, who turns 60 in February 2009.
Standard Life has been under pressure to reveal its intentions towards Resolution, a specialist investor in closed life funds, since Resolution rejected a £4.5bn approach from Pearl group, an arch rival controlled by Hugh Osmond.
Standard Life held talks in the summer about a joint approach for Resolution with Pearl. However, Mr Osmond revealed this week that he had agreed a deal with Royal London, which would see the mutual pick up some of Resolution's assets if his offer - below the market price - is successful.
In spite of the emerging interest, there is no guarantee that Standard and Swiss Re will make a move on Resolution. Standard Life, which has said it is considering a cash-and-shares offer for Resolution, could walk away at any time. Standard Life would only say that it continued to consider its options on Friday. Swiss Re declined to comment.
The Takeover Panel could soon set a deadline for potential bidders to show their hands, possibly about 10 days before shareholders in Resolution and Friends Provident are due to vote on a planned £8bn merger.
Shares in Resolution rose 16½p to 708½p on Friday, well ahead of Mr Osmond's 660p-a-share approach.
credited by: ft.com
Banks in 'super-conduit' proposal
US banks are in close discussion with financial regulators to resolve a liquidity crisis in the market for commercial paper, said sources close to the situation.
The scheme is intended to help bank-sponsored investment vehicles known as "conduits" or "structured investment vehicles" (SIVs) that obtain their funding via the commercial paper markets, but have struggled in recent weeks as a result of the credit squeeze.
The banks are planning to band together to create a single "super conduit" that would pool the ailing investment vehicles, dispersing the risk among all the banks. This could then help ease the liquidity squeeze in the short-term debt markets by easing fears that any such vehicle could implode, hitting the rest of the market.
Citigroup is one leader of the proposal. The bank has seven such affiliated vehicles with nearly $100bn in assets.
SIVs invest in long-term, and often thinly traded assets ranging from credit card debt and residential mortgages. Demand for such asset-backed commercial paper dried up during the credit squeeze as investors recoiled from complex structured products and subprime mortgage-related assets.
As such, the market for asset-backed commercial paper has shrunk by more than 20 per cent over the past two months, according to the Federal Reserve.
This forced many SIVs to tap their sponsoring banks for cash to fund their liquidity shortfall, and has contributed to elevated interbank lending rates based on concerns over how the situation could weigh on banks' balance sheets and restrict lending in other markets.
The three-month dollar London interbank offered rate was set at 5.22 per cent on Friday.
credited by: ft.com
The scheme is intended to help bank-sponsored investment vehicles known as "conduits" or "structured investment vehicles" (SIVs) that obtain their funding via the commercial paper markets, but have struggled in recent weeks as a result of the credit squeeze.
The banks are planning to band together to create a single "super conduit" that would pool the ailing investment vehicles, dispersing the risk among all the banks. This could then help ease the liquidity squeeze in the short-term debt markets by easing fears that any such vehicle could implode, hitting the rest of the market.
Citigroup is one leader of the proposal. The bank has seven such affiliated vehicles with nearly $100bn in assets.
SIVs invest in long-term, and often thinly traded assets ranging from credit card debt and residential mortgages. Demand for such asset-backed commercial paper dried up during the credit squeeze as investors recoiled from complex structured products and subprime mortgage-related assets.
As such, the market for asset-backed commercial paper has shrunk by more than 20 per cent over the past two months, according to the Federal Reserve.
This forced many SIVs to tap their sponsoring banks for cash to fund their liquidity shortfall, and has contributed to elevated interbank lending rates based on concerns over how the situation could weigh on banks' balance sheets and restrict lending in other markets.
The three-month dollar London interbank offered rate was set at 5.22 per cent on Friday.
credited by: ft.com
Tallinn left nursing property hangover
Like revellers plotting stag weekends abroad, buy-to-let investors are always looking for the "new Prague" - the latest, hottest destination in central and eastern Europe.
Tallinn, the Estonian capital, has become a magnet for both those seeking one last wild weekend before they are married and those eager to speculate on up-and-coming property markets. Cheap Easyjet flights from London are whisking both types of visitors to the Baltic coast.
Unfortunately, the party may have already moved on, and Tallinn has been left with a hangover.
Property prices have risen by 10 per cent to 15 per cent a year for the past eight years, according to UK agency Property in Estonia, with growth peaking about the time of European accession in 2004. But the market is predicted to stay flat or even fall this year.
Apartments in Tallinn's medieval old town already start at €5,000 ($7,120, £3,490) a square metre, above what you would have to pay in Prague's, much larger, historic central district.
Fears that Tallinn prices have converged too fast with European Union levels - propelled by over-eager local and foreign buyers and fiercely competitive banks - coincide with more general concerns over the overheating Baltic economies and the global credit crunch.
The Estonian economy grew 11.4 per cent last year and the finance ministry predicts 8.1 per cent growth this year.
But with interest rates creeping upwards and banks tightening lending conditions, some analysts warn of a sharper decline in growth, triggered by a loss of confidence in the property market.
"Given the large imbalances in the Baltic economies we think the downturn could be quite severe and long-lasting," said Danske Bank in August.
Figures are hard to come by, but most agencies agree property prices have fallen this year by 5 to 10 per cent, with the steepest falls in the old town and the crumbling Soviet-era tower blocks in the suburbs.
"We tend to steer clear of Tallinn right now," says Charlie Pritchard of UK-based Churchill Solutions. "That's where the biggest boom was and the market is now turning."
Other agencies are more sanguine. Baltic agency Ober-Haus agrees that the overall market may stagnate this year but, for the off-plan new developments that foreigners typically buy, it believes prices should still rise by 5 to 10 per cent.
Foreign demand has sagged slightly but British and Irish buy-to-let speculators are still coming and Scandinavian buyers from across the Baltic Sea remain keen on the city as a cheap holiday home location.
Most foreigners are interested in developments just outside the city centre, which start at €2,000 a square metre, although they represent only 10 per cent of buyers there. Suburban houses are more popular with local families but they are too large to offer good yields and too difficult to sell if there were to be a prolonged market downturn.
Meanwhile, the old town, where foreigners make up half the buyers, is now simply too expensive. "People are just not willing to pay those prices," says Charles Rodger, of UK-based Arc Property.
British investors are typically reinvesting equity from their rapidly appreciating properties at home, but there are also some who have no property at all.
"We have quite a lot of young clients who can't afford to get on the UK property ladder but who can afford to put up a deposit here," says Mr Rodger.
Barry Yager, a businessman from London, chose Tallinn in order to diversify risk from his UK buy-to-let portfolio.
Mr Yager used Churchill to invest £30,000 of equity last year in a 67 sq m flat in a development just outside the centre costing €260,000. He plans to hold the flat for 10 years and it has already appreciated to €300,000. "If I get 8 per cent compound [return] on that I'll be very happy," he says.
Today buyers such as Mr Yager are struggling to cover their mortgages and running costs whether they rent to locals or Scandinavian expatriate professionals.
Net yields have fallen to as low as 4 per cent as prices outpace rents, while mortgage rates have crept up to nearly 6 per cent.
Yet for those such as Mr Yager who are looking longer-term, Tallinn may still be an attractive bet. Peter Morris, managing director of Ober-Haus, says Tallinn prices are still half or one-third of those in Helsinki or Stockholm.
Although the supply of new properties increased by 20 per cent last year, prices should be supported by the shortage of space for development in the centre and fast-rising construction costs.
Moreover, demand remains strong because upwardly-mobile Estonians are desperate to move out of tower blocks into newly built apartments.
Estate agents are hopeful that prices will soon resume their long-term growth trend. "When it slows down a bit it makes a great buying opportunity," says Mr Morris.
credited by: ft.com
Tallinn, the Estonian capital, has become a magnet for both those seeking one last wild weekend before they are married and those eager to speculate on up-and-coming property markets. Cheap Easyjet flights from London are whisking both types of visitors to the Baltic coast.
Unfortunately, the party may have already moved on, and Tallinn has been left with a hangover.
Property prices have risen by 10 per cent to 15 per cent a year for the past eight years, according to UK agency Property in Estonia, with growth peaking about the time of European accession in 2004. But the market is predicted to stay flat or even fall this year.
Apartments in Tallinn's medieval old town already start at €5,000 ($7,120, £3,490) a square metre, above what you would have to pay in Prague's, much larger, historic central district.
Fears that Tallinn prices have converged too fast with European Union levels - propelled by over-eager local and foreign buyers and fiercely competitive banks - coincide with more general concerns over the overheating Baltic economies and the global credit crunch.
The Estonian economy grew 11.4 per cent last year and the finance ministry predicts 8.1 per cent growth this year.
But with interest rates creeping upwards and banks tightening lending conditions, some analysts warn of a sharper decline in growth, triggered by a loss of confidence in the property market.
"Given the large imbalances in the Baltic economies we think the downturn could be quite severe and long-lasting," said Danske Bank in August.
Figures are hard to come by, but most agencies agree property prices have fallen this year by 5 to 10 per cent, with the steepest falls in the old town and the crumbling Soviet-era tower blocks in the suburbs.
"We tend to steer clear of Tallinn right now," says Charlie Pritchard of UK-based Churchill Solutions. "That's where the biggest boom was and the market is now turning."
Other agencies are more sanguine. Baltic agency Ober-Haus agrees that the overall market may stagnate this year but, for the off-plan new developments that foreigners typically buy, it believes prices should still rise by 5 to 10 per cent.
Foreign demand has sagged slightly but British and Irish buy-to-let speculators are still coming and Scandinavian buyers from across the Baltic Sea remain keen on the city as a cheap holiday home location.
Most foreigners are interested in developments just outside the city centre, which start at €2,000 a square metre, although they represent only 10 per cent of buyers there. Suburban houses are more popular with local families but they are too large to offer good yields and too difficult to sell if there were to be a prolonged market downturn.
Meanwhile, the old town, where foreigners make up half the buyers, is now simply too expensive. "People are just not willing to pay those prices," says Charles Rodger, of UK-based Arc Property.
British investors are typically reinvesting equity from their rapidly appreciating properties at home, but there are also some who have no property at all.
"We have quite a lot of young clients who can't afford to get on the UK property ladder but who can afford to put up a deposit here," says Mr Rodger.
Barry Yager, a businessman from London, chose Tallinn in order to diversify risk from his UK buy-to-let portfolio.
Mr Yager used Churchill to invest £30,000 of equity last year in a 67 sq m flat in a development just outside the centre costing €260,000. He plans to hold the flat for 10 years and it has already appreciated to €300,000. "If I get 8 per cent compound [return] on that I'll be very happy," he says.
Today buyers such as Mr Yager are struggling to cover their mortgages and running costs whether they rent to locals or Scandinavian expatriate professionals.
Net yields have fallen to as low as 4 per cent as prices outpace rents, while mortgage rates have crept up to nearly 6 per cent.
Yet for those such as Mr Yager who are looking longer-term, Tallinn may still be an attractive bet. Peter Morris, managing director of Ober-Haus, says Tallinn prices are still half or one-third of those in Helsinki or Stockholm.
Although the supply of new properties increased by 20 per cent last year, prices should be supported by the shortage of space for development in the centre and fast-rising construction costs.
Moreover, demand remains strong because upwardly-mobile Estonians are desperate to move out of tower blocks into newly built apartments.
Estate agents are hopeful that prices will soon resume their long-term growth trend. "When it slows down a bit it makes a great buying opportunity," says Mr Morris.
credited by: ft.com
Bush urges approval of LatAm trade deals
President George W. Bush on Friday appealed for Congress to approve trade agreements with Peru, Panama and Colombia, warning that rejection of the deals would damage US interests in Latin America.
The president said there were "troubling signs" that protectionist sentiment was gaining strength because of fears that free trade was hurting US workers.
The comments, in a speech in Miami, highlighted White House concern about the threat posed to its trade agenda amid mounting political debate over the issue on Capitol Hill and on the presidential campaign trail.
The three trade deals with Latin American countries, and a fourth with South Korea, are threatened by opposition from many Democrats, who blame free trade for the heavy loss of US manufacturing jobs over recent years.
Mr Bush insisted the agreements, which are all awaiting Congressional approval, would benefit the US economy by increasing exports.
He said they were also crucial to promoting democracy and economic development, countering the "false populism" of some Latin American leaders - a veiled reference to Venezuela's Hugo Chávez and Bolivia's Evo Morales.
"As Congress debates, people across the hemisphere are watching to see if America will uphold its commitment to free and fair trade," said Mr Bush.
The remarks followed similar comments by Condoleezza Rice, US secretary of state, this week, demonstrating the depth of concern within the administration about the issue.
The deal with Colombia is considered to be in greatest jeopardy, in part because of Democratic concerns about the human rights record of Alvaro Uribe's government.
Critics have accused Mr Uribe, a staunch US ally, of not doing enough to prosecute dozens of lawmakers accused of colluding with rightwing paramilitary groups.
Mr Bush acknowledged that Colombia's record was "not perfect" but said the country was "clearly headed in the right direction".
"If Congress were to reject this committed ally, we would damage America's credibility in the region and make other countries less willing to co-operate in the future," he said.
Mr Bush said he understood the "painful" adjustment suffered by workers whose industries had been hurt by globalisation and pledged federal support for retraining schemes.
However, he insisted that the benefits brought by free trade outweighed the costs.
"The overwhelming majority of manufacturing jobs have been lost not because of trade, but because of productivity growth - because of improvements in technology," said Tony Fratto, White House spokesman.
Hillary Clinton, front-runner for the Democratic presidential nomination, this week said she would review trade agreements every five years if elected president.
The pledge highlighted the shift by Democrats away from the pro-trade policies advocated by former President Bill Clinton during the 1990s.
The leading Republican presidential candidates have so far remained faithful to the free trade agenda ahead of next year's election.
But some second-tier Republican White House hopefuls have adopted a more sceptical attitude towards trade - particularly with China.
credited by: ft.com
The president said there were "troubling signs" that protectionist sentiment was gaining strength because of fears that free trade was hurting US workers.
The comments, in a speech in Miami, highlighted White House concern about the threat posed to its trade agenda amid mounting political debate over the issue on Capitol Hill and on the presidential campaign trail.
The three trade deals with Latin American countries, and a fourth with South Korea, are threatened by opposition from many Democrats, who blame free trade for the heavy loss of US manufacturing jobs over recent years.
Mr Bush insisted the agreements, which are all awaiting Congressional approval, would benefit the US economy by increasing exports.
He said they were also crucial to promoting democracy and economic development, countering the "false populism" of some Latin American leaders - a veiled reference to Venezuela's Hugo Chávez and Bolivia's Evo Morales.
"As Congress debates, people across the hemisphere are watching to see if America will uphold its commitment to free and fair trade," said Mr Bush.
The remarks followed similar comments by Condoleezza Rice, US secretary of state, this week, demonstrating the depth of concern within the administration about the issue.
The deal with Colombia is considered to be in greatest jeopardy, in part because of Democratic concerns about the human rights record of Alvaro Uribe's government.
Critics have accused Mr Uribe, a staunch US ally, of not doing enough to prosecute dozens of lawmakers accused of colluding with rightwing paramilitary groups.
Mr Bush acknowledged that Colombia's record was "not perfect" but said the country was "clearly headed in the right direction".
"If Congress were to reject this committed ally, we would damage America's credibility in the region and make other countries less willing to co-operate in the future," he said.
Mr Bush said he understood the "painful" adjustment suffered by workers whose industries had been hurt by globalisation and pledged federal support for retraining schemes.
However, he insisted that the benefits brought by free trade outweighed the costs.
"The overwhelming majority of manufacturing jobs have been lost not because of trade, but because of productivity growth - because of improvements in technology," said Tony Fratto, White House spokesman.
Hillary Clinton, front-runner for the Democratic presidential nomination, this week said she would review trade agreements every five years if elected president.
The pledge highlighted the shift by Democrats away from the pro-trade policies advocated by former President Bill Clinton during the 1990s.
The leading Republican presidential candidates have so far remained faithful to the free trade agenda ahead of next year's election.
But some second-tier Republican White House hopefuls have adopted a more sceptical attitude towards trade - particularly with China.
credited by: ft.com
Calls to block proposed 3Com takeover
The proposed takeover of 3Com by Bain, the private equity firm, and Huawei, the Chinese telecommunications equipment maker, came under further pressure in Washington after lawmakers called on the administration to block the acquisition of the US technology group.
A non-binding resolution introduced by Ileana Ros Lehtinen, the most senior Republican on the House foreign affairs committee, said the transaction in its current form threatened national security and should not be approved by the inter-agency panel that investigates foreign transactions. Under the terms of the $2.2bn deal, Huawei will take a minority stake in 3Com.
The move is the most formal objection against the deal to date. It underscores that acquisitions involving sensitive US assets continue to be vulnerable to scrutiny on Capitol Hill in spite of recent legislation designed to instil more confidence in the executive branch Committee on Foreign Investment in the US (Cfius), which is charged with investigating such deals.
Dubai Ports World was forced last year to abandon its bid for US port terminals after lawmakers said the takeover represented a threat.
The scrutiny of the 3Com transactionraises the prospect that lawmakers could try to scupper the deal, which will be reviewed by Cfius. Bain has said it is committed to working with US officials to satisfy them the transaction presents no US national security risks.
The resolution, which was co-sponsored by seven other House members, cited reports that Huawei was one of the "least transparent [companies] in China" and was a supplier of air defence systems to Iraq during the 1990s. It also quoted reports of alleged cyber-attacks on the US by China.
credited by: ft.com
A non-binding resolution introduced by Ileana Ros Lehtinen, the most senior Republican on the House foreign affairs committee, said the transaction in its current form threatened national security and should not be approved by the inter-agency panel that investigates foreign transactions. Under the terms of the $2.2bn deal, Huawei will take a minority stake in 3Com.
The move is the most formal objection against the deal to date. It underscores that acquisitions involving sensitive US assets continue to be vulnerable to scrutiny on Capitol Hill in spite of recent legislation designed to instil more confidence in the executive branch Committee on Foreign Investment in the US (Cfius), which is charged with investigating such deals.
Dubai Ports World was forced last year to abandon its bid for US port terminals after lawmakers said the takeover represented a threat.
The scrutiny of the 3Com transactionraises the prospect that lawmakers could try to scupper the deal, which will be reviewed by Cfius. Bain has said it is committed to working with US officials to satisfy them the transaction presents no US national security risks.
The resolution, which was co-sponsored by seven other House members, cited reports that Huawei was one of the "least transparent [companies] in China" and was a supplier of air defence systems to Iraq during the 1990s. It also quoted reports of alleged cyber-attacks on the US by China.
credited by: ft.com
Lessons from the '87 Crash
As major stock indexes hit all-time highs, it's worth looking back 20 years to a far gloomier time, when investors were cruelly and suddenly reminded that the value of their investments can depend on something as unpredictable as a mood swing.
Every once in a while, fear, snowballing into panic, sweeps financial markets -- the stock market crash of October, 1987, now celebrating its 20th birthday, is a prime example.
In the five trading sessions from Oct. 13 to Oct. 19, 1987, the Dow Jones industrial average lost a third of its value and about $1 trillion of U.S. stock market value was wiped out. The losses culminated in a panic-stricken 22.6% decline in the Dow on Black Monday, Oct. 19. The traumatic drop raised recession fears and had some preparing for another Great Depression.
Stock market crashes were nothing new in 1987, but previous financial crises -- in 1929, for example -- often reflected fundamental problems in the U.S. economy.
Mysterious Meltdown
The market's nervous breakdown in 1987 is much harder to explain. Especially in light of what came next: After a couple months of gyrations, the markets started bouncing back. The broad Standard & Poor's 500-stock index ended 1987 with a modest 2.59% gain. And in less than two years, stocks had returned to their pre-crash, summer of 1987 heights.
More importantly for most Americans, the U.S. economy kept humming along. Corporate profits barely flinched.
To this day, no one really knows for sure why the markets chose Oct. 19 to crash. Finance Professor Paolo Pasquariello of the University of Michigan's Ross School of Business says the mystery behind 1987 prompted scholars to come up with new ways of studying financial crises. Instead of just focusing on economic fundamentals, they put more attention on the "market microstructure," the ways people trade and the process by which the market forms asset prices.
True, in hindsight there are plenty of adequate reasons for the '87 crash. Stocks had soared through much of 1987, hitting perhaps unsustainable levels: In historical terms, stock prices were way ahead of corporate profits. New trading technology and unproven investing strategies put strain on the market. There were worries about the economic impact of tensions in the Persian Gulf and bills being considered in Congress.
Out of Sorts
But for whatever reason, the mood on Wall Street shifted suddenly, and everyone tried to sell stocks at once. "Something just clicked," says Chris Lamoureux, finance professor at the University of Arizona. "It would be like a whole crowded theater trying to get out of one exit door."
It's a fairly common phenomenon on financial markets. Every stock transaction needs a buyer or a seller. When news or a mood shift causes a shortage of either buyers or sellers in the market, stock prices can surge or plunge quickly. Most of the time, balance is quickly restored. Lower prices draw in new buyers looking for a bargain, for example.
Sometimes, as in 1987 and many other true crises, things get out of hand. What happens at these moments is a mystery that may be best explained by dynamics deep within human nature.
Usually, explains behavioral finance expert Hersh Shefrin, a professor at Santa Clara University, investors believe they understand the world. In a crisis, "something dramatically different happens and we lose our confidence," Shefrin says. "Panic is basically a loss of self-control. Fear takes over."
Buyers and Sellers
Why don't smart investors, seeing others panic and sell stocks, step in to buy them up at a bargain?
First, it's very hard, in the midst of a crisis, to tell whether markets are acting rationally or irrationally. Buyers refused to enter credit markets this summer on fears about risky mortgage debt. It will take months, maybe years, to add up the full impact of losses on subprime loans.
It's also tough to think rationally yourself. "It's hard to keep your emotions in check when your money is on the line," Shefrin says.
And, even if you're confident the panicked market is giving you a buying opportunity, you're likely to want to wait until it hits bottom. If a market is in free fall, buying stocks on the way down is likely to give you instant losses.
Not only will buyers hold back. A falling market will bring many more sellers out of the woodwork. Leverage is one reason: Many investors buy stocks on borrowed money, so they can't afford to lose as much without facing bankruptcy.
This is one explanation for the temporary, sharp drops in many financial markets in the summer of 2007. Losses on leveraged mortgage debt prompted many hedge funds to dump all sorts of assets to raise cash.
Therapy for a Panicked Market
The solution to a panicked market, many say, is slowing down the herd of frightened investors all running in the same direction. New stock market rules instituted since 1987 pause trading after big losses. For example, U.S. securities markets institute trading halts when stock losses reach 10% in any trading session. "If you give people enough time, maybe they will figure out nothing fundamental is going on," University of Michigan's Pasquariello says.
There's another form of therapy for overly emotional markets: information. In 1929 and during other early financial crises, there were no computer systems, economic data were scarce, and corporate financial reporting was suspect. "The only thing people knew in the 1920s was there was a panic and everybody was selling," says Reena Aggarwal, finance professor at Georgetown University. "There was far less information available." In 1987, and even more today, investors had places to get more solid data on the market and the economy, giving them more courage not to follow the herd. That's one reason markets found it so easy to shrug off the effects of 1987, Aggarwal adds.
You can slow markets down, reform trading rules, and tap into extra information, but financial panics may never go away. It seems to be part of our collective human nature to occasionally reassess a situation, panic, and then all act at once.
Many see the markets as a precarious balance between fear and greed. Or, alternatively, irrational exuberance and unwarranted pessimism. "All you need is a shift in mass that's just big enough to push you toward the tipping point," Shefrin says.
In for the Long Haul
What should an individual investor do in the event of a financial crisis? If you're really sure that something fundamental has changed and the economy is heading toward recession or even another depression, it's probably in your interest to sell. But most experts advise waiting and doing nothing. "In volatile times, it is very likely that you [will be] the goat that other people are taking advantage of," University of Arizona's Lamoureux says. "It's often a very dangerous time to be trading."
Shefrin adds: "The chances of you doing the right thing are low." Don't think short-term, he says, and remind yourself of the long-term averages. For example, in any given year, stock markets have a two in three chance of moving higher. Other than that, it's nearly impossible to predict the future.
So, another financial panic may be inevitable. But relax: There's probably nothing you can do about it anyway. Anything you do might make your situation worse. So the best advice may be to send flowers to your stressed-out stockbroker, stick with your long-term investment strategy, and sit back and watch the market's roller-coaster ride.
credited by: BusinessWeek.com
Every once in a while, fear, snowballing into panic, sweeps financial markets -- the stock market crash of October, 1987, now celebrating its 20th birthday, is a prime example.
In the five trading sessions from Oct. 13 to Oct. 19, 1987, the Dow Jones industrial average lost a third of its value and about $1 trillion of U.S. stock market value was wiped out. The losses culminated in a panic-stricken 22.6% decline in the Dow on Black Monday, Oct. 19. The traumatic drop raised recession fears and had some preparing for another Great Depression.
Stock market crashes were nothing new in 1987, but previous financial crises -- in 1929, for example -- often reflected fundamental problems in the U.S. economy.
Mysterious Meltdown
The market's nervous breakdown in 1987 is much harder to explain. Especially in light of what came next: After a couple months of gyrations, the markets started bouncing back. The broad Standard & Poor's 500-stock index ended 1987 with a modest 2.59% gain. And in less than two years, stocks had returned to their pre-crash, summer of 1987 heights.
More importantly for most Americans, the U.S. economy kept humming along. Corporate profits barely flinched.
To this day, no one really knows for sure why the markets chose Oct. 19 to crash. Finance Professor Paolo Pasquariello of the University of Michigan's Ross School of Business says the mystery behind 1987 prompted scholars to come up with new ways of studying financial crises. Instead of just focusing on economic fundamentals, they put more attention on the "market microstructure," the ways people trade and the process by which the market forms asset prices.
True, in hindsight there are plenty of adequate reasons for the '87 crash. Stocks had soared through much of 1987, hitting perhaps unsustainable levels: In historical terms, stock prices were way ahead of corporate profits. New trading technology and unproven investing strategies put strain on the market. There were worries about the economic impact of tensions in the Persian Gulf and bills being considered in Congress.
Out of Sorts
But for whatever reason, the mood on Wall Street shifted suddenly, and everyone tried to sell stocks at once. "Something just clicked," says Chris Lamoureux, finance professor at the University of Arizona. "It would be like a whole crowded theater trying to get out of one exit door."
It's a fairly common phenomenon on financial markets. Every stock transaction needs a buyer or a seller. When news or a mood shift causes a shortage of either buyers or sellers in the market, stock prices can surge or plunge quickly. Most of the time, balance is quickly restored. Lower prices draw in new buyers looking for a bargain, for example.
Sometimes, as in 1987 and many other true crises, things get out of hand. What happens at these moments is a mystery that may be best explained by dynamics deep within human nature.
Usually, explains behavioral finance expert Hersh Shefrin, a professor at Santa Clara University, investors believe they understand the world. In a crisis, "something dramatically different happens and we lose our confidence," Shefrin says. "Panic is basically a loss of self-control. Fear takes over."
Buyers and Sellers
Why don't smart investors, seeing others panic and sell stocks, step in to buy them up at a bargain?
First, it's very hard, in the midst of a crisis, to tell whether markets are acting rationally or irrationally. Buyers refused to enter credit markets this summer on fears about risky mortgage debt. It will take months, maybe years, to add up the full impact of losses on subprime loans.
It's also tough to think rationally yourself. "It's hard to keep your emotions in check when your money is on the line," Shefrin says.
And, even if you're confident the panicked market is giving you a buying opportunity, you're likely to want to wait until it hits bottom. If a market is in free fall, buying stocks on the way down is likely to give you instant losses.
Not only will buyers hold back. A falling market will bring many more sellers out of the woodwork. Leverage is one reason: Many investors buy stocks on borrowed money, so they can't afford to lose as much without facing bankruptcy.
This is one explanation for the temporary, sharp drops in many financial markets in the summer of 2007. Losses on leveraged mortgage debt prompted many hedge funds to dump all sorts of assets to raise cash.
Therapy for a Panicked Market
The solution to a panicked market, many say, is slowing down the herd of frightened investors all running in the same direction. New stock market rules instituted since 1987 pause trading after big losses. For example, U.S. securities markets institute trading halts when stock losses reach 10% in any trading session. "If you give people enough time, maybe they will figure out nothing fundamental is going on," University of Michigan's Pasquariello says.
There's another form of therapy for overly emotional markets: information. In 1929 and during other early financial crises, there were no computer systems, economic data were scarce, and corporate financial reporting was suspect. "The only thing people knew in the 1920s was there was a panic and everybody was selling," says Reena Aggarwal, finance professor at Georgetown University. "There was far less information available." In 1987, and even more today, investors had places to get more solid data on the market and the economy, giving them more courage not to follow the herd. That's one reason markets found it so easy to shrug off the effects of 1987, Aggarwal adds.
You can slow markets down, reform trading rules, and tap into extra information, but financial panics may never go away. It seems to be part of our collective human nature to occasionally reassess a situation, panic, and then all act at once.
Many see the markets as a precarious balance between fear and greed. Or, alternatively, irrational exuberance and unwarranted pessimism. "All you need is a shift in mass that's just big enough to push you toward the tipping point," Shefrin says.
In for the Long Haul
What should an individual investor do in the event of a financial crisis? If you're really sure that something fundamental has changed and the economy is heading toward recession or even another depression, it's probably in your interest to sell. But most experts advise waiting and doing nothing. "In volatile times, it is very likely that you [will be] the goat that other people are taking advantage of," University of Arizona's Lamoureux says. "It's often a very dangerous time to be trading."
Shefrin adds: "The chances of you doing the right thing are low." Don't think short-term, he says, and remind yourself of the long-term averages. For example, in any given year, stock markets have a two in three chance of moving higher. Other than that, it's nearly impossible to predict the future.
So, another financial panic may be inevitable. But relax: There's probably nothing you can do about it anyway. Anything you do might make your situation worse. So the best advice may be to send flowers to your stressed-out stockbroker, stick with your long-term investment strategy, and sit back and watch the market's roller-coaster ride.
credited by: BusinessWeek.com
When Big Deals Go Bad -- and Why
The greatest business successes are often engineered by bold visionaries who altered industries: Think Microsoft (MSFT), Berkshire Hathaway (BRKB), and Southwest Airlines (LUV). Unfortunately, when that type of grand thinking is applied to the mergers-and-acquisitions arena, disaster often ensues. Multibillion-dollar deals are based on personal relationships and egos, grandiose plans for so-called transformational changes to an industry, and a sense that the new sum will be far greater than all the previous parts. And, of course, the path for much of the wheeling and dealing is well lubricated by fee-hunting bankers and lawyers.
The wreckage of deals gone bad litters the business landscape these days. On Oct. 4, shareholders of German automaker DaimlerChrysler (DAI) are expected to approve renaming the company Daimler, jettisoning the last vestiges of the disastrous 1998 acquisition of Chrysler, for which it paid some $40 billion. While retaining a 19.9% stake in the Michigan company, Daimler's shareholders will be more than happy to forget the whole episode, which saw litigation over the deal, a dearth of hit models, cultural and operational snags between U.S. and German managers, and heavy financial losses. In May, Daimler agreed to sell the bulk of the company [BusinessWeek.com, 5/14/07] to private equity firm Cerberus Capital Management for a mere $6 billion.
On Oct. 1, online auction house eBay (EBAY) conceded that it had overpaid in its $2.6 billion acquisition of Internet telephone service Skype Technologies in 2005. EBay took a writedown of $1.4 billion, and Skype founders Niklas Zennstrm and Janus Friis departed [BusinessWeek.com, 10/1/07] from their former suitor.
And years after the catastrophic merger of Time Warner and AOL, Time Warner (TWX) is still trying to make the deal work. Time Warner's latest move: Focus AOL on the advertising market and move AOL headquarters from Virginia to Manhattan. "AOL is for keeps," Time Warner Chief Executive Richard Parsons has said, arguing that it wouldn't make sense to part with the Internet property just as advertising dollars are shifting online.
"Game-Changing" ROI and Disasters
How is it that such deals come together in the first place? In each case, managers were clearly swinging for the fences, pouring huge sums into the bet like a Vegas gambler desperate to score a big win as he sees his chips dwindle. And bad deals often are born of fear or desperation. A rival -- or potential rival -- is forging a new market or making inroads into the existing one and the incumbents must respond. Sometimes there's a surfeit of confidence about what the future will hold and management's ability to stitch the various pieces together nicely. In other cases, the deal may make strategic sense but at a price that is wildly off the mark.
No doubt, some large deals yield rich rewards. One of the richest was the 1965 deal that merged Pepsi-Cola and Frito-Lay to form PepsiCo. (PEP). In the decades since, the Purchase [N.Y.] company has become a global juggernaut, with more than 15 brands that each tout annual sales of over $100 million. And in July, 2005, many people questioned the wisdom when Rupert Murdoch's News Corp. (NWS) paid $580 million for the social networking site MySpace. Analysts now figure the popular property could be worth $10 billion, just as rival site Facebook is reportedly mulling selling a 5% stake [BusinessWeek.com, 9/25/07] that would also value it at around $10 billion. Two years on, Murdoch appears to have gotten an extraordinary bargain.
In many cases, the deals that end in disaster often come with descriptions like "game-changing" and "transformational," and hype attains currency. In every major disaster, the acquirer was a major player run by professional management and overseen by a board of directors. The target companies were scrutinized by analysts, vetted by advisers, and ultimately approved by shareholders, including sophisticated institutional investors. Yet those safeguards weren't adequate to prevent disaster at Time Warner, eBay, or Daimler. So why do they still happen so regularly?
Bad Decisions Lead to Understanding
M&A tends to go awry when well-run orderly deal machines are thrown off kilter by volatility or emotion. The tech and telecom sectors are rife with bad deals because revolutionary technological and regulatory change provoked fear and uncertainty, leading executives into bad decisions. That helped produce debacles such as AOL Time Warner. Arrogance, envy, and untamed ambition often lead to poor decisions as well. "Psychology is a big part of M&A. It's not all of it, but it's a big part," says veteran banker Hal Ritch, co-chief executive of M&A adviser Sagent Advisors and a former co-head of M&A at Citigroup (C), Credit Suisse in the U.S., and Donaldson Lufkin & Jenrette, which was acquired by Credit Suisse (CS).
To put such failures in perspective, it's helpful to understand what makes a good deal work. Companies with solid track records in M&A, such as Internet-equipment maker Cisco Systems (CSCO), tend to buy on a regular basis. They have methodical processes for selecting targets and integrating businesses postdeal. And they don't buy companies to prop up earnings or to enter dramatically new lines of business.
"We don't favor large, transformational deals," says Ned Hooper, senior vice-president of corporate business development at Cisco [BusinessWeek.com, 4/9/07]. "We think M&A works best when it is part of a regular and stable business process. The best deals tend to bolster existing lines of business, or open new lines of business in adjacent markets. And we don't do deals to boost near-term earnings. We do deals to acquire promising new technology and to capture market transitions to open up new areas of growth." It may not hurt that buyers such as Cisco tend to work on their own, without much outside influence from investment bankers. Hooper runs Cisco's M&A group as part of its overall business development unit, vetting ideas for acquisitions with his team.
M&A: Not a Cure-All
Many of the worst deals have come about because management tried to use M&A to fix a fundamental business problem, such as a market that faces a terminal regulatory or technological threat. Companies such as AT&T (T) and the former drugstore chain Revco sought acquisitions to steer their businesses out of troubled markets and move into new opportunities.
In AT&T's case, it tried to move from the traditional landline phone business -- which was dying -- into the newer and more promising broadband Internet and cable businesses. M&A proved to be a poor route for that transition. Years later, Verizon had more success [BusinessWeek.com, 10/1/07] by expanding from telecom into cable and broadband via large capital investments and relying on organic growth. Revco tried to move out of the pharmacy business with its 1983 acquisition of discounter Odd Lots, sealing the company's demise the next decade.
Just like AT&T, toymaker Mattel (MAT) nearly went bankrupt using M&A as a way to keep pace with technology. The company spent billions to buy software and game publisher the Learning Co. That, and a string of disappointing profit results, led to the ouster of former Chief Executive Jill Barad.
Market and Cultural Landscapes
Managers tend to make the biggest M&A blunders when they convince themselves that times have changed and that basic business rules no longer apply. "The best acquirers make a habit of constantly scouring the landscape for acquisition opportunities that make fundamental sense, and don't depend solely on whether the market is up or down at the moment," Ritch says. If that sounds like the description of a certain legendary billionaire businessman from Omaha, it's hardly a coincidence. That doesn't necessarily mean that all M&A targets must be profitable. Cisco often buys startups that have never turned a profit, as long as they possess a solid business plan.
Good acquirers also pay close attention to a potential deal's cultural fit and the odds that the two organizations can be integrated successfully. To this day, huge cultural divides remain between the staffs at the AOL and Time Warner units, making it difficult to construct a successful operation, industry insiders say.
As a general rule, the larger and more ambitious the deal, the more "landscape-shifting" it appears, the higher the risk. Time after time, deals heralded as transformational have merely transformed a troubled business into a terminal case headed for bankruptcy.
Check out the BusinessWeek.com slide show for a roundup of the worst deals in recent memory.
credited by: BusinessWeek.com
The wreckage of deals gone bad litters the business landscape these days. On Oct. 4, shareholders of German automaker DaimlerChrysler (DAI) are expected to approve renaming the company Daimler, jettisoning the last vestiges of the disastrous 1998 acquisition of Chrysler, for which it paid some $40 billion. While retaining a 19.9% stake in the Michigan company, Daimler's shareholders will be more than happy to forget the whole episode, which saw litigation over the deal, a dearth of hit models, cultural and operational snags between U.S. and German managers, and heavy financial losses. In May, Daimler agreed to sell the bulk of the company [BusinessWeek.com, 5/14/07] to private equity firm Cerberus Capital Management for a mere $6 billion.
On Oct. 1, online auction house eBay (EBAY) conceded that it had overpaid in its $2.6 billion acquisition of Internet telephone service Skype Technologies in 2005. EBay took a writedown of $1.4 billion, and Skype founders Niklas Zennstrm and Janus Friis departed [BusinessWeek.com, 10/1/07] from their former suitor.
And years after the catastrophic merger of Time Warner and AOL, Time Warner (TWX) is still trying to make the deal work. Time Warner's latest move: Focus AOL on the advertising market and move AOL headquarters from Virginia to Manhattan. "AOL is for keeps," Time Warner Chief Executive Richard Parsons has said, arguing that it wouldn't make sense to part with the Internet property just as advertising dollars are shifting online.
"Game-Changing" ROI and Disasters
How is it that such deals come together in the first place? In each case, managers were clearly swinging for the fences, pouring huge sums into the bet like a Vegas gambler desperate to score a big win as he sees his chips dwindle. And bad deals often are born of fear or desperation. A rival -- or potential rival -- is forging a new market or making inroads into the existing one and the incumbents must respond. Sometimes there's a surfeit of confidence about what the future will hold and management's ability to stitch the various pieces together nicely. In other cases, the deal may make strategic sense but at a price that is wildly off the mark.
No doubt, some large deals yield rich rewards. One of the richest was the 1965 deal that merged Pepsi-Cola and Frito-Lay to form PepsiCo. (PEP). In the decades since, the Purchase [N.Y.] company has become a global juggernaut, with more than 15 brands that each tout annual sales of over $100 million. And in July, 2005, many people questioned the wisdom when Rupert Murdoch's News Corp. (NWS) paid $580 million for the social networking site MySpace. Analysts now figure the popular property could be worth $10 billion, just as rival site Facebook is reportedly mulling selling a 5% stake [BusinessWeek.com, 9/25/07] that would also value it at around $10 billion. Two years on, Murdoch appears to have gotten an extraordinary bargain.
In many cases, the deals that end in disaster often come with descriptions like "game-changing" and "transformational," and hype attains currency. In every major disaster, the acquirer was a major player run by professional management and overseen by a board of directors. The target companies were scrutinized by analysts, vetted by advisers, and ultimately approved by shareholders, including sophisticated institutional investors. Yet those safeguards weren't adequate to prevent disaster at Time Warner, eBay, or Daimler. So why do they still happen so regularly?
Bad Decisions Lead to Understanding
M&A tends to go awry when well-run orderly deal machines are thrown off kilter by volatility or emotion. The tech and telecom sectors are rife with bad deals because revolutionary technological and regulatory change provoked fear and uncertainty, leading executives into bad decisions. That helped produce debacles such as AOL Time Warner. Arrogance, envy, and untamed ambition often lead to poor decisions as well. "Psychology is a big part of M&A. It's not all of it, but it's a big part," says veteran banker Hal Ritch, co-chief executive of M&A adviser Sagent Advisors and a former co-head of M&A at Citigroup (C), Credit Suisse in the U.S., and Donaldson Lufkin & Jenrette, which was acquired by Credit Suisse (CS).
To put such failures in perspective, it's helpful to understand what makes a good deal work. Companies with solid track records in M&A, such as Internet-equipment maker Cisco Systems (CSCO), tend to buy on a regular basis. They have methodical processes for selecting targets and integrating businesses postdeal. And they don't buy companies to prop up earnings or to enter dramatically new lines of business.
"We don't favor large, transformational deals," says Ned Hooper, senior vice-president of corporate business development at Cisco [BusinessWeek.com, 4/9/07]. "We think M&A works best when it is part of a regular and stable business process. The best deals tend to bolster existing lines of business, or open new lines of business in adjacent markets. And we don't do deals to boost near-term earnings. We do deals to acquire promising new technology and to capture market transitions to open up new areas of growth." It may not hurt that buyers such as Cisco tend to work on their own, without much outside influence from investment bankers. Hooper runs Cisco's M&A group as part of its overall business development unit, vetting ideas for acquisitions with his team.
M&A: Not a Cure-All
Many of the worst deals have come about because management tried to use M&A to fix a fundamental business problem, such as a market that faces a terminal regulatory or technological threat. Companies such as AT&T (T) and the former drugstore chain Revco sought acquisitions to steer their businesses out of troubled markets and move into new opportunities.
In AT&T's case, it tried to move from the traditional landline phone business -- which was dying -- into the newer and more promising broadband Internet and cable businesses. M&A proved to be a poor route for that transition. Years later, Verizon had more success [BusinessWeek.com, 10/1/07] by expanding from telecom into cable and broadband via large capital investments and relying on organic growth. Revco tried to move out of the pharmacy business with its 1983 acquisition of discounter Odd Lots, sealing the company's demise the next decade.
Just like AT&T, toymaker Mattel (MAT) nearly went bankrupt using M&A as a way to keep pace with technology. The company spent billions to buy software and game publisher the Learning Co. That, and a string of disappointing profit results, led to the ouster of former Chief Executive Jill Barad.
Market and Cultural Landscapes
Managers tend to make the biggest M&A blunders when they convince themselves that times have changed and that basic business rules no longer apply. "The best acquirers make a habit of constantly scouring the landscape for acquisition opportunities that make fundamental sense, and don't depend solely on whether the market is up or down at the moment," Ritch says. If that sounds like the description of a certain legendary billionaire businessman from Omaha, it's hardly a coincidence. That doesn't necessarily mean that all M&A targets must be profitable. Cisco often buys startups that have never turned a profit, as long as they possess a solid business plan.
Good acquirers also pay close attention to a potential deal's cultural fit and the odds that the two organizations can be integrated successfully. To this day, huge cultural divides remain between the staffs at the AOL and Time Warner units, making it difficult to construct a successful operation, industry insiders say.
As a general rule, the larger and more ambitious the deal, the more "landscape-shifting" it appears, the higher the risk. Time after time, deals heralded as transformational have merely transformed a troubled business into a terminal case headed for bankruptcy.
Check out the BusinessWeek.com slide show for a roundup of the worst deals in recent memory.
credited by: BusinessWeek.com
Stocks End Lower Before Jobs Report
Major U.S. stock indexes closed lower Wednesday, with selling accelerating on the tripping of futures-related selling programs amid increased speculation that Friday's nonfarm payrolls report will show solid improvement from August, S&P MarketScope said. A positive payrolls report would make it less likely that the Federal Reserve would lower interest rates again.
On Wednesday, the Dow Jones industrial average lost its grip on the 14,000 threshold, finishing 79.26 points, or 0.56%, lower at 13,968.05. The broader S&P 500 index ended down 7.04 points, or 0.46%, at 1,539.59. The tech-heavy Nasdaq index slid 17.68 points, or 0.64%, to 2,729.43.
Equities got off to a weak start Wednesday on news that Morgan Stanley (MS) had taken a negative view of chip maker Intel Corp. (INTC) and on weaker quarterly results from Micron Technology (MU). Then some positive private payrolls and service sector reports may have further deflated hopes of further Fed action to pump up the economy.
Another negative weighing on investor sentiment was analysts' dramatically cutting their forecast for third-quarter earnings growth across the Standard & Poor's 500 Index to 2.0% from 3.9%. According to CNBC, the halving of estimates resulted solely from Citigroup's (C) warning on Monday of a 60% drop in its quarterly profit, reflecting the company's large weighting in the index.
On the New York Stock Exchange, for every 21 stocks trading lower, 12 showed gains. Nasdaq breadth was 18-11 negative amid losses by Intel and Broadcom (BRCM) in moderate volume.
Homebuilder and retailer stocks continued to track higher, reportedly on buying by hedge funds managers hoping to catch up on performance by loading up on sharply discounted names and planning to take profits at yearend.
"Whenever we come to the conclusion of one of these bear raids, people are forced to scramble to catch up performance-wise. [The market] went through the same thing each of the last four years," said Brian Reynolds, a chief market strategist at M.S. Howells & Co.
Following the lead of Citigroup and UBS AG (UBS), Deutsche Bank (DB) said it will take charges of around $3.1 billion in the third quarter, sending its investment banking unit into the red to the tune of $352.3 million to $493.2 million, while it still sees overall net profit for the period rising. The German bank's earnings are expected to exceed 1.97 billion in the third quarter, vs. $1.75 billion a year ago, due to gains on property disposals and tax credits.
In the wake of Citigroup's pre-emptive writedown of its assets on Monday, which counter-intuitively sent the Dow rallying to a new high, economists and other market observers continue to debate whether the financial services sector has truly put the worst of the subprime meltdown-cum-credit-crisis behind it, as Citigroup suggested by citing signs of normalizing earnings in the fourth quarter.
Activity in the corporate bond market is making it clear that the credit crisis is windown down and coming to an end, said Reynolds at M.S. Howells.
"Money is flooding into the corporate bond market," he said. "Its just a matter of time before the [leveraged] buyouts and stock buybacks start back up again."
The thawing of the credit freeze means there's no need for further easing by the Fed on interest rates, he added.
Leading Wednesday's economic news, the Institute for Supply Managements non-manufacturing index for September came in at 54.8, only mildly weaker than the 55.5 reading that was expected and down one point from 55.8 in August. New orders and prices paid were modestly lower, while the employment component rebounded from a weak August reading to 52.7. The data don't indicate a recession is in the offing, CNBC said.
The U.S. ADP employment report released Wednesday said private payrolls rose 58,000 in September, slightly better than an anticipated 55,000 increase, after a downward-adjusted gain of 27,000 in August. Manufacturing jobs remained weak, falling by 22,000, and goods-producing jobs dropped by another 39,000, while service jobs rose by 97,000. Employment in the financial services sector declined for a second consecutive month. The data were in line with expectations and consistent with an increase of roughly 120,000 in nonfarm payrolls that the Bureau of Labor Statistics is expected to report on Friday, Action Economics said.
The Mortgage Bankers Association reported a 2.7% drop in its Market Composite Index, which measures mortgage loan application volume, to a seasonally adjusted 636.7 for the week ending Sept. 28, from 654.2 the previous week. The Refinance Index fell 3.8% to 1950.4 and the seasonally adjusted Purchase Index was down 1.8% to 411.4. Applications to refinance adjustable rate mortgages rose to 13.8% of total applications from 12.2% the week before.
In a volatile session for oil prices, crude oil for November delivery in New York bounced back and forth between negative and positive territory before finally ending 11 cents lower at $79.94 a barrel on Wednesday. Selling came in response to a U.S. Energy Information Administration report that showed a 1.2 million barrel increase in crude stockpiles to reach a total of 321.8 million barrels in the week ending Sept. 28, instead of the decline of 550,000 to 800,000 barrels that had been anticipated. Distillate inventories unexpectedly fell by 1.2 million barrels, where analysts had predicted a build of 1.3 million barrels.
Among stocks in the news Wednesday, Intel shares were down 2.2% after Morgan Stanley initiated analyst coverage with an underweight rating.
Micron Technology shares fell 8.9% after it reported a swing to a net loss of 21 cents a share in its fourth quarter from earnings of eight cents a share a year ago as lower gross margins offset a 4.7% increase in sales. The random access memory manufacturer said fourth-quarter and fiscal 2007 results were hurt by industry supply/demand dynamics that depressed ASPs for memory products.
Kaiser Aluminum (KALU) shares rose 6.9% on an upgrade by Bear Stearns (BSC) to outperform from peer perform after an "upbeat management meeting." Among the positive signs, Bear Stearns cited the company's projected strength in aerospace, driven by expected strong order growth from international carriers, and organic growth initiatives that remain on schedule. Bear Stearns upped its 2007 profit estimate to $4.65 from $3.45 a share.
E-Future Information Technology Inc. (EFUT) shares soared 66.3% after it said that Beijing Tourism Group (BTG), one of China's largest tourism groups, has licensed its Visual Process Management software to centralize purchasing and optimize business processes of its selected business segments.
Panera Bread Co. (PNRA) shares rose 8% after it narrowed its third-quarter profit forecast to 35 to 37 cents from 32 to 38 cents a share on a reported 35% rise in revenue. The company said system-wide sales rose 0.8% in September at its bakery-cafes open at least 18 months.
European equity indexes were trading higher Wednesday. In London, the FTSE 100 index advanced 0.54% to 6,535.20. Germany's DAX index edged 0.11% higher to 7,955.30. In Paris, the CAC 40 reversed to the upside to trade 0.12% higher at 5,806.18.
Asian markets ended mixed. In Japan, the Nikkei 225 index rose 0.90% to 17,199.89. In Hong Kong, the Hang Seng index leaped dropped 2.55% to 27,479.94. The Shanghai composite index is closed all week for a Chinese national holiday.
Treasury Market
Treasury yields bounced on positive ISM non-manufacturing and private employment numbers, which triggered nervous selling from trading and leveraged accounts, Action Economics cited sources as saying.
The 10-year note slipped 09/32 to 101-16/32 for a yield of 4.56%, and the 2-year bond was down 03/32 to 99-30/32 for a yield of 4.02%. The 30-year bond fell 14/32 to 103-06/32 for a yield of 4.80%.
credited by: BusinessWeek.com
On Wednesday, the Dow Jones industrial average lost its grip on the 14,000 threshold, finishing 79.26 points, or 0.56%, lower at 13,968.05. The broader S&P 500 index ended down 7.04 points, or 0.46%, at 1,539.59. The tech-heavy Nasdaq index slid 17.68 points, or 0.64%, to 2,729.43.
Equities got off to a weak start Wednesday on news that Morgan Stanley (MS) had taken a negative view of chip maker Intel Corp. (INTC) and on weaker quarterly results from Micron Technology (MU). Then some positive private payrolls and service sector reports may have further deflated hopes of further Fed action to pump up the economy.
Another negative weighing on investor sentiment was analysts' dramatically cutting their forecast for third-quarter earnings growth across the Standard & Poor's 500 Index to 2.0% from 3.9%. According to CNBC, the halving of estimates resulted solely from Citigroup's (C) warning on Monday of a 60% drop in its quarterly profit, reflecting the company's large weighting in the index.
On the New York Stock Exchange, for every 21 stocks trading lower, 12 showed gains. Nasdaq breadth was 18-11 negative amid losses by Intel and Broadcom (BRCM) in moderate volume.
Homebuilder and retailer stocks continued to track higher, reportedly on buying by hedge funds managers hoping to catch up on performance by loading up on sharply discounted names and planning to take profits at yearend.
"Whenever we come to the conclusion of one of these bear raids, people are forced to scramble to catch up performance-wise. [The market] went through the same thing each of the last four years," said Brian Reynolds, a chief market strategist at M.S. Howells & Co.
Following the lead of Citigroup and UBS AG (UBS), Deutsche Bank (DB) said it will take charges of around $3.1 billion in the third quarter, sending its investment banking unit into the red to the tune of $352.3 million to $493.2 million, while it still sees overall net profit for the period rising. The German bank's earnings are expected to exceed 1.97 billion in the third quarter, vs. $1.75 billion a year ago, due to gains on property disposals and tax credits.
In the wake of Citigroup's pre-emptive writedown of its assets on Monday, which counter-intuitively sent the Dow rallying to a new high, economists and other market observers continue to debate whether the financial services sector has truly put the worst of the subprime meltdown-cum-credit-crisis behind it, as Citigroup suggested by citing signs of normalizing earnings in the fourth quarter.
Activity in the corporate bond market is making it clear that the credit crisis is windown down and coming to an end, said Reynolds at M.S. Howells.
"Money is flooding into the corporate bond market," he said. "Its just a matter of time before the [leveraged] buyouts and stock buybacks start back up again."
The thawing of the credit freeze means there's no need for further easing by the Fed on interest rates, he added.
Leading Wednesday's economic news, the Institute for Supply Managements non-manufacturing index for September came in at 54.8, only mildly weaker than the 55.5 reading that was expected and down one point from 55.8 in August. New orders and prices paid were modestly lower, while the employment component rebounded from a weak August reading to 52.7. The data don't indicate a recession is in the offing, CNBC said.
The U.S. ADP employment report released Wednesday said private payrolls rose 58,000 in September, slightly better than an anticipated 55,000 increase, after a downward-adjusted gain of 27,000 in August. Manufacturing jobs remained weak, falling by 22,000, and goods-producing jobs dropped by another 39,000, while service jobs rose by 97,000. Employment in the financial services sector declined for a second consecutive month. The data were in line with expectations and consistent with an increase of roughly 120,000 in nonfarm payrolls that the Bureau of Labor Statistics is expected to report on Friday, Action Economics said.
The Mortgage Bankers Association reported a 2.7% drop in its Market Composite Index, which measures mortgage loan application volume, to a seasonally adjusted 636.7 for the week ending Sept. 28, from 654.2 the previous week. The Refinance Index fell 3.8% to 1950.4 and the seasonally adjusted Purchase Index was down 1.8% to 411.4. Applications to refinance adjustable rate mortgages rose to 13.8% of total applications from 12.2% the week before.
In a volatile session for oil prices, crude oil for November delivery in New York bounced back and forth between negative and positive territory before finally ending 11 cents lower at $79.94 a barrel on Wednesday. Selling came in response to a U.S. Energy Information Administration report that showed a 1.2 million barrel increase in crude stockpiles to reach a total of 321.8 million barrels in the week ending Sept. 28, instead of the decline of 550,000 to 800,000 barrels that had been anticipated. Distillate inventories unexpectedly fell by 1.2 million barrels, where analysts had predicted a build of 1.3 million barrels.
Among stocks in the news Wednesday, Intel shares were down 2.2% after Morgan Stanley initiated analyst coverage with an underweight rating.
Micron Technology shares fell 8.9% after it reported a swing to a net loss of 21 cents a share in its fourth quarter from earnings of eight cents a share a year ago as lower gross margins offset a 4.7% increase in sales. The random access memory manufacturer said fourth-quarter and fiscal 2007 results were hurt by industry supply/demand dynamics that depressed ASPs for memory products.
Kaiser Aluminum (KALU) shares rose 6.9% on an upgrade by Bear Stearns (BSC) to outperform from peer perform after an "upbeat management meeting." Among the positive signs, Bear Stearns cited the company's projected strength in aerospace, driven by expected strong order growth from international carriers, and organic growth initiatives that remain on schedule. Bear Stearns upped its 2007 profit estimate to $4.65 from $3.45 a share.
E-Future Information Technology Inc. (EFUT) shares soared 66.3% after it said that Beijing Tourism Group (BTG), one of China's largest tourism groups, has licensed its Visual Process Management software to centralize purchasing and optimize business processes of its selected business segments.
Panera Bread Co. (PNRA) shares rose 8% after it narrowed its third-quarter profit forecast to 35 to 37 cents from 32 to 38 cents a share on a reported 35% rise in revenue. The company said system-wide sales rose 0.8% in September at its bakery-cafes open at least 18 months.
European equity indexes were trading higher Wednesday. In London, the FTSE 100 index advanced 0.54% to 6,535.20. Germany's DAX index edged 0.11% higher to 7,955.30. In Paris, the CAC 40 reversed to the upside to trade 0.12% higher at 5,806.18.
Asian markets ended mixed. In Japan, the Nikkei 225 index rose 0.90% to 17,199.89. In Hong Kong, the Hang Seng index leaped dropped 2.55% to 27,479.94. The Shanghai composite index is closed all week for a Chinese national holiday.
Treasury Market
Treasury yields bounced on positive ISM non-manufacturing and private employment numbers, which triggered nervous selling from trading and leveraged accounts, Action Economics cited sources as saying.
The 10-year note slipped 09/32 to 101-16/32 for a yield of 4.56%, and the 2-year bond was down 03/32 to 99-30/32 for a yield of 4.02%. The 30-year bond fell 14/32 to 103-06/32 for a yield of 4.80%.
credited by: BusinessWeek.com
Venture Capital's Hidden Calamity
This is a bad time to be a venture capitalist. Anyone who says different is raising a new fund -- or works at one of the few firms having a good year.
Sure, the numbers look great on the surface. The value of deals rose a solid, yet not bubbly, 8% in the second quarter, with investors pumping $7.4 billion into emerging companies, according to Dow Jones VentureOne. And the money is funding some legitimately exciting frontiers, including Web 2.0, which attracted $500 million in the first half. Companies specializing in clean tech got $1.1 billion in the same period.
Initial public offerings are up for the year, too. In the second quarter, venture-backed companies tapped the public markets for $2.73 billion, the most raised in a three-month period since the go-go days of 2000. And researchers expect the current period to be another banner quarter, with a whopping 46 companies looking to file.
IPOs and Acquisitions Tell a Different Story
But a closer look at the numbers reveals some disturbing trends. Consider IPOs. Most of the initial share sales getting done are mainly one-off companies that were founded years ago and have slogged away at building solid businesses for a half-decade or more. This year's biggest hits were MetroPCS (PCS) of Dallas and EMC's (EMC) spin-out of VMware (VMW) -- hardly your classic Silicon Valley startups. There's simply no big overall tech movement getting Wall Street revved up, and among entrepreneurs, the feeling is mutual. Sarbanes Oxley and other regulations have made the prospect of going public far less appealing.
The picture looks worse among acquisitions. Sure, the usually sleepy third quarter saw $10 billion come in acquisition proceeds, but that was spread among 90 deals. Companies like TellMe, the voice recognition software company founded in the late 1990s that snagged $800 million from Microsoft (MSFT), are in the minority this year. Far more common is the tech company that plodded along for more than six years, chewing through some $30 million in venture cash to eventually get bought for $50 million or so. Indeed, the median length of time it took companies to get bought was the longest Dow Jones VentureOne has seen since it started measuring the industry 20 years ago. Meanwhile, valuations keep rising, as billions of dollars in VCs coffers fight to get in what few great companies are out there.
Upheaval Ahead
It's not that venture firms are destitute. They've got plenty of base hits. But the home runs are increasingly elusive. And venture capital is a home-run business, where the top 10% firms make up nearly 80% of the returns.
Internally, many investors are worried that only a handful of firms will break even on the current crop of funds, much less post stellar returns. In hushed conversations over breakfasts at Buck's and lunches at the Sundeck, VC veterans are wondering aloud whether they should get out, or, after years of playing boardroom quarterback, whether they've still got the chops to actually build a startup.
However you slice it, unless something changes, venture capital is in for upheaval. Some venture capitalists are going to find themselves out of a job. Overall, the industry may become more the font of outsourced research and development for big firms and less the breeding ground for the next great tech powerhouse. And returns will be lackluster for the majority of firms left out of the best deals.
Smaller Stakes
The current calamity has been a long time in the making. After the NASDAQ party ended, firms learned the hard way that you could no longer take companies from idea to public in 18 months. Not only is it a business of building companies, it's a business about people, gut calls, and the art of building a portfolio one deal at a time. That's why scores of firms that had raised $1 billion-plus funds wound up returning hundreds of millions in uninvested money back in the early '00s.
But even as many firms were voluntarily downsizing, those investing in the venture industry as a whole -- the world's largest pension funds and institutions -- only wanted to invest in venture firms more. Money wanted to get into a shrinking business, giving marginal firms another shot and keeping any Darwinian shakeout at bay. "Venture capitalists are still living in 1999," says Peter Thiel, former PayPal Chief executive and founder of hedge fund Clarium Capital and venture fund The Founders Fund.
The fallout is still being felt, even in what are considered hot sectors. Take Web 2.0, where exactly one company, YouTube, had a $1 billion-plus outcome when it was purchased by Google (GOOG). Only a handful has sold in the hundreds of millions. And because the costs of starting these businesses are so low, venture investors own smaller stakes than they did in the last Web bubble.
Paper Gains
Clean-tech companies have seen a few exits, with two IPOs this year and three in registration. Still, the deals have been small. Most of the Clean-tech market is still experimental, in both technology and market opportunity.
Meanwhile, venture investors are paying more to get into the best deals. A recent study by Valley law firm Fenwick & West showed that valuations are on the rise. Valuations are an important barometer of who holds more power at any given point in the Silicon Valley economic cycle. The higher a valuation, the fewer shares a VC's dollar buys, and the more leverage entrepreneurs have.
High valuations aren't all bad news for the venture set. Step-ups in valuations between rounds, for instance, mean that on paper, early-stage investors are showing gains. But so far, that's just on paper. Typically, valuations are driven up by the prospect of a big acquisition or IPO. Now, they're mostly being driven up by the piles of money looking for the next hot deal. Venture investors are getting all the drawbacks of a hot market, with competition to get in on deals and high prices, without the benefits -- a rash of blockbuster IPOs and acquisitions.
Oodles of Cash
Heading into this year, a study by the National Venture Capital Assn. found that almost half of venture investors surveyed predicted a decrease in the number of VC firms even as returns improve overall. "The pundits were correct about the reduction in venture capital firms -- they were just a few years too early," Mark Heesen, head of the NVCA, said at the time of the survey.
Indeed, other studies have shown that terms between venture guys and their investors are getting harsher, as limited partners increasingly demand lower management fees and so-called "key man" provisions, which give investors an out if certain rock-star partners leave a firm. The most staggering example of the tension was the recent news of Yale getting kicked out of top Valley firm Sequoia Capital's newest fund after refusing to invest in the firm's less-proven overseas and late-stage funds.
There is a bright side. With so much cash floating around the Valley, entrepreneurs have never had it so good. Sure, a lot of dumb ideas are getting funded, but nearly any great idea has a good chance of getting funded, too. There is likely a trove of new experiments being started on the sly. And ultimately, VCs will fund these deals, and that top 10% will continue to have huge hits with returns that the NASDAQ, bond markets, and even buyout firms can't match.
The question is, in an industry that has gotten this big and this bloated, how long do the other 90% and their investors keep hoping for the next winning lottery ticket?
credited by: businessweek.com
Sure, the numbers look great on the surface. The value of deals rose a solid, yet not bubbly, 8% in the second quarter, with investors pumping $7.4 billion into emerging companies, according to Dow Jones VentureOne. And the money is funding some legitimately exciting frontiers, including Web 2.0, which attracted $500 million in the first half. Companies specializing in clean tech got $1.1 billion in the same period.
Initial public offerings are up for the year, too. In the second quarter, venture-backed companies tapped the public markets for $2.73 billion, the most raised in a three-month period since the go-go days of 2000. And researchers expect the current period to be another banner quarter, with a whopping 46 companies looking to file.
IPOs and Acquisitions Tell a Different Story
But a closer look at the numbers reveals some disturbing trends. Consider IPOs. Most of the initial share sales getting done are mainly one-off companies that were founded years ago and have slogged away at building solid businesses for a half-decade or more. This year's biggest hits were MetroPCS (PCS) of Dallas and EMC's (EMC) spin-out of VMware (VMW) -- hardly your classic Silicon Valley startups. There's simply no big overall tech movement getting Wall Street revved up, and among entrepreneurs, the feeling is mutual. Sarbanes Oxley and other regulations have made the prospect of going public far less appealing.
The picture looks worse among acquisitions. Sure, the usually sleepy third quarter saw $10 billion come in acquisition proceeds, but that was spread among 90 deals. Companies like TellMe, the voice recognition software company founded in the late 1990s that snagged $800 million from Microsoft (MSFT), are in the minority this year. Far more common is the tech company that plodded along for more than six years, chewing through some $30 million in venture cash to eventually get bought for $50 million or so. Indeed, the median length of time it took companies to get bought was the longest Dow Jones VentureOne has seen since it started measuring the industry 20 years ago. Meanwhile, valuations keep rising, as billions of dollars in VCs coffers fight to get in what few great companies are out there.
Upheaval Ahead
It's not that venture firms are destitute. They've got plenty of base hits. But the home runs are increasingly elusive. And venture capital is a home-run business, where the top 10% firms make up nearly 80% of the returns.
Internally, many investors are worried that only a handful of firms will break even on the current crop of funds, much less post stellar returns. In hushed conversations over breakfasts at Buck's and lunches at the Sundeck, VC veterans are wondering aloud whether they should get out, or, after years of playing boardroom quarterback, whether they've still got the chops to actually build a startup.
However you slice it, unless something changes, venture capital is in for upheaval. Some venture capitalists are going to find themselves out of a job. Overall, the industry may become more the font of outsourced research and development for big firms and less the breeding ground for the next great tech powerhouse. And returns will be lackluster for the majority of firms left out of the best deals.
Smaller Stakes
The current calamity has been a long time in the making. After the NASDAQ party ended, firms learned the hard way that you could no longer take companies from idea to public in 18 months. Not only is it a business of building companies, it's a business about people, gut calls, and the art of building a portfolio one deal at a time. That's why scores of firms that had raised $1 billion-plus funds wound up returning hundreds of millions in uninvested money back in the early '00s.
But even as many firms were voluntarily downsizing, those investing in the venture industry as a whole -- the world's largest pension funds and institutions -- only wanted to invest in venture firms more. Money wanted to get into a shrinking business, giving marginal firms another shot and keeping any Darwinian shakeout at bay. "Venture capitalists are still living in 1999," says Peter Thiel, former PayPal Chief executive and founder of hedge fund Clarium Capital and venture fund The Founders Fund.
The fallout is still being felt, even in what are considered hot sectors. Take Web 2.0, where exactly one company, YouTube, had a $1 billion-plus outcome when it was purchased by Google (GOOG). Only a handful has sold in the hundreds of millions. And because the costs of starting these businesses are so low, venture investors own smaller stakes than they did in the last Web bubble.
Paper Gains
Clean-tech companies have seen a few exits, with two IPOs this year and three in registration. Still, the deals have been small. Most of the Clean-tech market is still experimental, in both technology and market opportunity.
Meanwhile, venture investors are paying more to get into the best deals. A recent study by Valley law firm Fenwick & West showed that valuations are on the rise. Valuations are an important barometer of who holds more power at any given point in the Silicon Valley economic cycle. The higher a valuation, the fewer shares a VC's dollar buys, and the more leverage entrepreneurs have.
High valuations aren't all bad news for the venture set. Step-ups in valuations between rounds, for instance, mean that on paper, early-stage investors are showing gains. But so far, that's just on paper. Typically, valuations are driven up by the prospect of a big acquisition or IPO. Now, they're mostly being driven up by the piles of money looking for the next hot deal. Venture investors are getting all the drawbacks of a hot market, with competition to get in on deals and high prices, without the benefits -- a rash of blockbuster IPOs and acquisitions.
Oodles of Cash
Heading into this year, a study by the National Venture Capital Assn. found that almost half of venture investors surveyed predicted a decrease in the number of VC firms even as returns improve overall. "The pundits were correct about the reduction in venture capital firms -- they were just a few years too early," Mark Heesen, head of the NVCA, said at the time of the survey.
Indeed, other studies have shown that terms between venture guys and their investors are getting harsher, as limited partners increasingly demand lower management fees and so-called "key man" provisions, which give investors an out if certain rock-star partners leave a firm. The most staggering example of the tension was the recent news of Yale getting kicked out of top Valley firm Sequoia Capital's newest fund after refusing to invest in the firm's less-proven overseas and late-stage funds.
There is a bright side. With so much cash floating around the Valley, entrepreneurs have never had it so good. Sure, a lot of dumb ideas are getting funded, but nearly any great idea has a good chance of getting funded, too. There is likely a trove of new experiments being started on the sly. And ultimately, VCs will fund these deals, and that top 10% will continue to have huge hits with returns that the NASDAQ, bond markets, and even buyout firms can't match.
The question is, in an industry that has gotten this big and this bloated, how long do the other 90% and their investors keep hoping for the next winning lottery ticket?
credited by: businessweek.com
Yahoo! Juices Its Search Engine
For years, no matter which search engine a Web surfer might use, the results always looked the same: page after page of underlined blue words. Sure, the same search through Google (GOOG) and Yahoo! might return identical Web links in a slightly different order. Or Microsoft's engines might display a link not listed by its rivals, or lack one they suggested. But the experience has been largely indistinguishable.
Now Yahoo (YHOO) is trying to differentiate its search results by displaying, in addition to the usual list of links, excerpts of information found on some of those Web sites. The new engine, unveiled Oct. 2, also will present relevant photos and videos, as well as full explanations from partners and Yahoo-owned properties such as Yahoo! Finance, Y! Local, the social search site Answers, and photo-sharing site Flickr. With revenue from search ads surging, the goal of this overhaul is to keep Yahoo users from venturing to Google's long dominant engine whenever it comes time to search.
Tallying the Best Results
Yahoo, of course, is hardly alone in this quest. The relaunch of its search engine came just days after Microsoft (MSFT) flipped the switch on its updated Live Search technology [BusinessWeek.com, 9/27/07], also asserting its results will be more relevant. Similarly, Barry Diller's IAC/InterActiveCorp (IACI) recently began running TV commercials to tout an overhaul of its Ask.com service [BusinessWeek.com, 6/4/07].
For all these players, the objective is to deliver information Web surfers want on the very first page of results, rather than requiring users to wade through a sea of blue links. "We want to give people a material reason to come to Yahoo as opposed to anywhere else," says Vish Makhijani, Yahoo's senior vice-president of search. The new engine still provides Web links, but they are often located below the quick answers that Yahoo calculates the user really wants.
For example, a search for "Jessica Alba movies" reveals a pull-down window, located immediately beneath the search bar, featuring the names of all the recent movies in which the Good Luck Chuck actress has starred. The movie titles, which Yahoo provides by scanning its movie site, are meant to help users refine their query. Then, if a specific movie is selected, Yahoo shows a box with related trailers, reviews, and local theater times instead of immediately linking to the film's Web site or, say, IMDb.com [the Internet Movie Database].
New and Improved All Around
Not all of the features are entirely new. Yahoo's engine, the Web's second busiest after Google's, has quietly rolled out many new capabilities during the past few months. A search for restaurants, for example, will highlight information from Y! Local enabling users to search by cuisine, neighborhood, and user ratings. Similarly, a search for local events offers prominent play to information from Upcoming.org, the social calendar site that Yahoo acquired in October, 2005. And Yahoo has long displayed stock charts from Yahoo! Finance when responding to queries for a company's share price.
For Microsoft, Live Search is the second generation of a service launched last year. The latest edition displays more of what Microsoft calls "instant answers" above the Web links from which they're culled. In addition to the obligatory links, the results to a search for a football player will display related team standings, individual statistics, and other information about that player. Live Search also features images, news articles, and product reviews from relevant Web sites. Where possible, a search for a person's name will produce images and, in the case of celebrities, a user rating.
In June, IAC reengineered Ask.com to better highlight images, encyclopedia entries, and news articles. The new version, which divides search results into three columns, prominently features Wikipedia encyclopedia entries and videos from sites such as Dailymotion and ExpoTV. Like Yahoo, IAC is trying to position its own sites as an attractive destination for searches. The launch of Ask3D followed the December debut of Ask City, a local search site that highlights reviews from IAC-owned Citysearch and movie information from IAC's Ticketmaster.
Google: A Verb for a Reason
With Google's name so deeply entrenched in users' minds as a synonym for search, rivals may need to do more than provide better results to win converts. This isn't the first time the leading contenders have upgraded their search engines with new features. But despite their efforts, Google's market share has only increased. At last count, Google was fielding nearly 64% of search queries, according to measurement firm Hitwise. That's more than Yahoo [23%], Microsoft [8%], and Ask [3.5%] combined. Even Google's competitors admit it won't be easy to overcome the power of Google's brand. "It's no question that it is a big hurdle," says Yahoo's Makhijani.
Dominance of search brings tremendous financial rewards: Google is expected to take in roughly three-quarters of the more than $8 billion forecasted to be spent on search advertising this year, according to research firm eMarketer. Yahoo, by contrast, is expected to pull in just 16.3% of that market. In past years, much of that revenue disparity was driven by the reality that Google was simply better at placing relevant ads next to any given search, boosting the number of money-generating clicks. But with Yahoo's upgrade to a more robust search advertising platform named Panama earlier this year, more of that revenue gap is explained by the difference in total searches performed on the respective engines.
None of this is to suggest that Google isn't working hard to cement and boost its commanding market share. In May, Google debuted Universal Search, an upgrade to its core search engine that tries to go beyond the concept of providing short answers, such as a stock quote in response to a ticker symbol. In addition to providing the requisite Web links, Universal Search displays images, videos, news, and other information.
The Advantage of Content
Some of these enhancements have the added benefit of directing users to other Google-owned properties. A query for Apple (AAPL) Chief Executive Steve Jobs, for example, returns videos from Google's YouTube that play from within the search page, as well as images and related news articles from Google's archive. [Unlike Yahoo's and Microsoft's new results, these extras often appear at the bottom of the search results page.] Before Universal Search, Google's search results would only provide Web links to such multimedia content, unless the query was made on Google's news, photo, or video search sites. "Sometimes those non-Web links are the best answer to your search query," says David Bailey, lead software engineer on Universal Search. "We've made some strides, but are working on many further improvements, as part of Google's commitment to remain the leader in providing a relevance-focused results page."
While its new search capabilities echo many of those introduced by rivals, Yahoo still has something that could give its new engine an edge: dozens of content sites focusing on everything from automobiles to weather. Owning those properties enables Yahoo to mine its data more thoroughly than an outside search engine can, says Makhijani. For example, because it has its own music service, Yahoo doesn't need to guess that an audio clip is from a certain artist singing a certain song when it highlights that clip in response to a search. "If we own it, and we can deliver additional value, then we will use it," says Makhijani.
credited by: BusinessWeek.com
Now Yahoo (YHOO) is trying to differentiate its search results by displaying, in addition to the usual list of links, excerpts of information found on some of those Web sites. The new engine, unveiled Oct. 2, also will present relevant photos and videos, as well as full explanations from partners and Yahoo-owned properties such as Yahoo! Finance, Y! Local, the social search site Answers, and photo-sharing site Flickr. With revenue from search ads surging, the goal of this overhaul is to keep Yahoo users from venturing to Google's long dominant engine whenever it comes time to search.
Tallying the Best Results
Yahoo, of course, is hardly alone in this quest. The relaunch of its search engine came just days after Microsoft (MSFT) flipped the switch on its updated Live Search technology [BusinessWeek.com, 9/27/07], also asserting its results will be more relevant. Similarly, Barry Diller's IAC/InterActiveCorp (IACI) recently began running TV commercials to tout an overhaul of its Ask.com service [BusinessWeek.com, 6/4/07].
For all these players, the objective is to deliver information Web surfers want on the very first page of results, rather than requiring users to wade through a sea of blue links. "We want to give people a material reason to come to Yahoo as opposed to anywhere else," says Vish Makhijani, Yahoo's senior vice-president of search. The new engine still provides Web links, but they are often located below the quick answers that Yahoo calculates the user really wants.
For example, a search for "Jessica Alba movies" reveals a pull-down window, located immediately beneath the search bar, featuring the names of all the recent movies in which the Good Luck Chuck actress has starred. The movie titles, which Yahoo provides by scanning its movie site, are meant to help users refine their query. Then, if a specific movie is selected, Yahoo shows a box with related trailers, reviews, and local theater times instead of immediately linking to the film's Web site or, say, IMDb.com [the Internet Movie Database].
New and Improved All Around
Not all of the features are entirely new. Yahoo's engine, the Web's second busiest after Google's, has quietly rolled out many new capabilities during the past few months. A search for restaurants, for example, will highlight information from Y! Local enabling users to search by cuisine, neighborhood, and user ratings. Similarly, a search for local events offers prominent play to information from Upcoming.org, the social calendar site that Yahoo acquired in October, 2005. And Yahoo has long displayed stock charts from Yahoo! Finance when responding to queries for a company's share price.
For Microsoft, Live Search is the second generation of a service launched last year. The latest edition displays more of what Microsoft calls "instant answers" above the Web links from which they're culled. In addition to the obligatory links, the results to a search for a football player will display related team standings, individual statistics, and other information about that player. Live Search also features images, news articles, and product reviews from relevant Web sites. Where possible, a search for a person's name will produce images and, in the case of celebrities, a user rating.
In June, IAC reengineered Ask.com to better highlight images, encyclopedia entries, and news articles. The new version, which divides search results into three columns, prominently features Wikipedia encyclopedia entries and videos from sites such as Dailymotion and ExpoTV. Like Yahoo, IAC is trying to position its own sites as an attractive destination for searches. The launch of Ask3D followed the December debut of Ask City, a local search site that highlights reviews from IAC-owned Citysearch and movie information from IAC's Ticketmaster.
Google: A Verb for a Reason
With Google's name so deeply entrenched in users' minds as a synonym for search, rivals may need to do more than provide better results to win converts. This isn't the first time the leading contenders have upgraded their search engines with new features. But despite their efforts, Google's market share has only increased. At last count, Google was fielding nearly 64% of search queries, according to measurement firm Hitwise. That's more than Yahoo [23%], Microsoft [8%], and Ask [3.5%] combined. Even Google's competitors admit it won't be easy to overcome the power of Google's brand. "It's no question that it is a big hurdle," says Yahoo's Makhijani.
Dominance of search brings tremendous financial rewards: Google is expected to take in roughly three-quarters of the more than $8 billion forecasted to be spent on search advertising this year, according to research firm eMarketer. Yahoo, by contrast, is expected to pull in just 16.3% of that market. In past years, much of that revenue disparity was driven by the reality that Google was simply better at placing relevant ads next to any given search, boosting the number of money-generating clicks. But with Yahoo's upgrade to a more robust search advertising platform named Panama earlier this year, more of that revenue gap is explained by the difference in total searches performed on the respective engines.
None of this is to suggest that Google isn't working hard to cement and boost its commanding market share. In May, Google debuted Universal Search, an upgrade to its core search engine that tries to go beyond the concept of providing short answers, such as a stock quote in response to a ticker symbol. In addition to providing the requisite Web links, Universal Search displays images, videos, news, and other information.
The Advantage of Content
Some of these enhancements have the added benefit of directing users to other Google-owned properties. A query for Apple (AAPL) Chief Executive Steve Jobs, for example, returns videos from Google's YouTube that play from within the search page, as well as images and related news articles from Google's archive. [Unlike Yahoo's and Microsoft's new results, these extras often appear at the bottom of the search results page.] Before Universal Search, Google's search results would only provide Web links to such multimedia content, unless the query was made on Google's news, photo, or video search sites. "Sometimes those non-Web links are the best answer to your search query," says David Bailey, lead software engineer on Universal Search. "We've made some strides, but are working on many further improvements, as part of Google's commitment to remain the leader in providing a relevance-focused results page."
While its new search capabilities echo many of those introduced by rivals, Yahoo still has something that could give its new engine an edge: dozens of content sites focusing on everything from automobiles to weather. Owning those properties enables Yahoo to mine its data more thoroughly than an outside search engine can, says Makhijani. For example, because it has its own music service, Yahoo doesn't need to guess that an audio clip is from a certain artist singing a certain song when it highlights that clip in response to a search. "If we own it, and we can deliver additional value, then we will use it," says Makhijani.
credited by: BusinessWeek.com
Selling Students into Credit-Card Debt
Citibank (C) pitched an offer at Ohio State University that few college students would refuse: free food. The bank plastered the Columbus campus with advertisements for free sandwiches at a local haunt, Potbelly. The only catch? Students had to submit a credit-card application before any free food crossed the counter.
The food-for-credit application scheme caught the attention of Ohio's attorney general, Marc Dann, who sued Citibank on Sept. 19, alleging that the campus advertisements violated the state's consumer-protection laws. Dann has partnered with students and professors at Ohio State's Moritz College of Law to prosecute the suit, which accuses Citibank of using bait-and-switch advertising, failing to clearly state conditions of the offer, and tempting students with a prize without disclosing all the conditions. The suit seeks more accountability in credit-card marketing practices. "Citibank is starting out the marketing deceptively and banking on the fact that these kids won't read the fine print," Dann says.
Citibank maintains that it never condoned the advertising, and is pursuing its own investigation of the ad. "The practices alleged in the complaint are not approved Citibank practices and if true, they were not condoned nor authorized by Citibank," says company spokesman Sam Wang. Another company, Pennsylvania-based credit card marketer Campus Dimensions, is also being sued by Dann for a similar scheme at a second restaurant, La Bamba. An attorney for Campus Dimensions declined to comment on the suit.
Affinity Deals Escape Scrutiny
As concern over student debt levels rises, lawmakers and campuses nationwide have turned their attention to credit-card issuers and marketing practices aimed at students. California, Oklahoma, and Texas recently passed laws restricting credit-card marketing on public campuses, joining 15 other states that already had such restrictions in place. In California, credit-card marketers can't lure students with free gifts; in Oklahoma, colleges can no longer sell student information for credit-card marketing purposes; and in Texas, on-campus credit-card marketing was curtailed, permitting marketing only on limited days and in certain locations.
However, beyond the recent legislation, another type of state-sanctioned credit-card marketing escapes serious scrutiny: affinity card contracts and marketing. Virtually every major university boasts a multimillion-dollar affinity relationship with a credit-card company. Under these deals, the university can receive $10 million or more in exchange for offering credit-card companies exclusive access to students, alumni, and professors at school athletic events. In some cases, the deals require schools to provide student e-mail addresses and phone numbers to the card-issuing bank. As state funding shrinks for public universities, such deals grow.
These deals provide a steady income stream for the university, but at what cost to students? Consumer advocates argue that these contracts allow schools to profit from student debt. In many cases, universities actually get a cut of overall charges on the school-backed card, raising questions about conflicts and whether schools negotiate the best deals for student and alumni.
What's more, typically the worse a card's financial terms are for students and alumni, the bigger the profit for the school. These deals potentially weaken schools' ability to protect students from aggressive marketing tactics, high interest rates, onerous debt loads, and deceptive billing practices. "You have to wonder whether the university is doing everything they can to reduce student debt, when there is a clear financial conflict of interest," says Travis Plunkett, legislative director for the Consumer Federation of America [consumerfed.org]. Diane Wagner, a Bank of America (BAC) spokeswoman, says that 98% of affinity card holders are alumni and other nonstudents. "There are real benefits to the cardholder including reward points and cash-back bonuses," Wagner says. "Alumni are showing pride in their schools by becoming cardholders." She declined to comment on whether the cards pose a conflict of interest.
Not Targeting Students?
Even as Dann mounts his case against Citibank, another credit-card issuer, Bank of America, has exclusive access to Ohio State's students through an affinity contract it negotiated with the alumni association. The contract could pour millions into state coffers. Few such deals are disclosed, but those that are offer a glimpse at the money at stake.
The University of Tennessee recently signed a deal with Chase worth $10 million -- roughly $384 per student at a school with an enrollment of 26,038. If Ohio State -- with the nation's largest enrollment of more than 59,000 -- signed a similar pact, it could potentially be worth more than $22 million. Yet the particular terms of the contract, brokered through the alumni association and not subject to open contract laws, is shrouded in secrecy. "It's between us and Bank of America," says Jay Hansen, a spokesman for the Ohio State alumni association. Except the contract isn't just between those two, because it also involves students who are subjected to marketing at athletic events. Hansen contends that the marketing efforts are largely directed at alumni and fans. "The affinity agreement gives us the opportunity to vet a card for our alumni, and make sure that it's a good card, while offering a quality financial product to alumni and fans," he says.
Bank of America leads the charge with more than 900 affinity relationships; JPMorgan Chase (JPM) follows close behind. "College students are a valuable market for credit-card companies because of their potential as long-term loyal customers," says David Robertson, publisher of The Nilson Report, a payment industry trade publication. Build brand recognition with a collegian now, and you may get to sell her car loans, mutual funds, financial advice, and mortgages for decades. "Full-service banks live and die over their ability to offer multiple account relationships to existing customers," says Robertson. Also, in an increasingly saturated market, college students represent a portion of the market that's still growing.
Bill Eviscerated with a Phrase
The affinity contracts also have forced legislators to dilute proposed laws to preserve the privileges promised the banks through these affinity deals. Oklahoma State Senator Jim Reynolds [R-Oklahoma City], authored a bill this year that banned universities from selling student information to card companies for marketing purposes. Initially, Reynolds had sought to ban card companies entirely from college campuses statewide. But the University of Oklahoma protested the ban because it already had promised Bank of America exclusive access to market credit cards in exchange for $1 million per year.
Such an arrangement represented "a fight that we wouldn't have won," Reynolds says. In California, lawmakers passed a bill that bans credit-card companies from getting students to sign up for plastic with free gifts, like pizza, T-shirts, or Frisbees, on all public school campuses. But a key provision in the bill that would have required public colleges to disclose credit-card marketing arrangements was considerably weakened before the bill went to Governor Arnold Schwarzenegger. To ensure its passage, the bill's authors added the phrase "with the exception of proprietary information" to the bill. That one change negated the bill's intended transparency, since schools can use the exception to shield critical details of their contracts by citing them as proprietary. "The students are wondering, are we being sold to the highest bidder?" says Chris Vaeth, director of special projects with the Greenlining Institute [greenlining.org], a left-leaning public policy institute that wrote the bill.
credited by: BusinessWeek.com
The food-for-credit application scheme caught the attention of Ohio's attorney general, Marc Dann, who sued Citibank on Sept. 19, alleging that the campus advertisements violated the state's consumer-protection laws. Dann has partnered with students and professors at Ohio State's Moritz College of Law to prosecute the suit, which accuses Citibank of using bait-and-switch advertising, failing to clearly state conditions of the offer, and tempting students with a prize without disclosing all the conditions. The suit seeks more accountability in credit-card marketing practices. "Citibank is starting out the marketing deceptively and banking on the fact that these kids won't read the fine print," Dann says.
Citibank maintains that it never condoned the advertising, and is pursuing its own investigation of the ad. "The practices alleged in the complaint are not approved Citibank practices and if true, they were not condoned nor authorized by Citibank," says company spokesman Sam Wang. Another company, Pennsylvania-based credit card marketer Campus Dimensions, is also being sued by Dann for a similar scheme at a second restaurant, La Bamba. An attorney for Campus Dimensions declined to comment on the suit.
Affinity Deals Escape Scrutiny
As concern over student debt levels rises, lawmakers and campuses nationwide have turned their attention to credit-card issuers and marketing practices aimed at students. California, Oklahoma, and Texas recently passed laws restricting credit-card marketing on public campuses, joining 15 other states that already had such restrictions in place. In California, credit-card marketers can't lure students with free gifts; in Oklahoma, colleges can no longer sell student information for credit-card marketing purposes; and in Texas, on-campus credit-card marketing was curtailed, permitting marketing only on limited days and in certain locations.
However, beyond the recent legislation, another type of state-sanctioned credit-card marketing escapes serious scrutiny: affinity card contracts and marketing. Virtually every major university boasts a multimillion-dollar affinity relationship with a credit-card company. Under these deals, the university can receive $10 million or more in exchange for offering credit-card companies exclusive access to students, alumni, and professors at school athletic events. In some cases, the deals require schools to provide student e-mail addresses and phone numbers to the card-issuing bank. As state funding shrinks for public universities, such deals grow.
These deals provide a steady income stream for the university, but at what cost to students? Consumer advocates argue that these contracts allow schools to profit from student debt. In many cases, universities actually get a cut of overall charges on the school-backed card, raising questions about conflicts and whether schools negotiate the best deals for student and alumni.
What's more, typically the worse a card's financial terms are for students and alumni, the bigger the profit for the school. These deals potentially weaken schools' ability to protect students from aggressive marketing tactics, high interest rates, onerous debt loads, and deceptive billing practices. "You have to wonder whether the university is doing everything they can to reduce student debt, when there is a clear financial conflict of interest," says Travis Plunkett, legislative director for the Consumer Federation of America [consumerfed.org]. Diane Wagner, a Bank of America (BAC) spokeswoman, says that 98% of affinity card holders are alumni and other nonstudents. "There are real benefits to the cardholder including reward points and cash-back bonuses," Wagner says. "Alumni are showing pride in their schools by becoming cardholders." She declined to comment on whether the cards pose a conflict of interest.
Not Targeting Students?
Even as Dann mounts his case against Citibank, another credit-card issuer, Bank of America, has exclusive access to Ohio State's students through an affinity contract it negotiated with the alumni association. The contract could pour millions into state coffers. Few such deals are disclosed, but those that are offer a glimpse at the money at stake.
The University of Tennessee recently signed a deal with Chase worth $10 million -- roughly $384 per student at a school with an enrollment of 26,038. If Ohio State -- with the nation's largest enrollment of more than 59,000 -- signed a similar pact, it could potentially be worth more than $22 million. Yet the particular terms of the contract, brokered through the alumni association and not subject to open contract laws, is shrouded in secrecy. "It's between us and Bank of America," says Jay Hansen, a spokesman for the Ohio State alumni association. Except the contract isn't just between those two, because it also involves students who are subjected to marketing at athletic events. Hansen contends that the marketing efforts are largely directed at alumni and fans. "The affinity agreement gives us the opportunity to vet a card for our alumni, and make sure that it's a good card, while offering a quality financial product to alumni and fans," he says.
Bank of America leads the charge with more than 900 affinity relationships; JPMorgan Chase (JPM) follows close behind. "College students are a valuable market for credit-card companies because of their potential as long-term loyal customers," says David Robertson, publisher of The Nilson Report, a payment industry trade publication. Build brand recognition with a collegian now, and you may get to sell her car loans, mutual funds, financial advice, and mortgages for decades. "Full-service banks live and die over their ability to offer multiple account relationships to existing customers," says Robertson. Also, in an increasingly saturated market, college students represent a portion of the market that's still growing.
Bill Eviscerated with a Phrase
The affinity contracts also have forced legislators to dilute proposed laws to preserve the privileges promised the banks through these affinity deals. Oklahoma State Senator Jim Reynolds [R-Oklahoma City], authored a bill this year that banned universities from selling student information to card companies for marketing purposes. Initially, Reynolds had sought to ban card companies entirely from college campuses statewide. But the University of Oklahoma protested the ban because it already had promised Bank of America exclusive access to market credit cards in exchange for $1 million per year.
Such an arrangement represented "a fight that we wouldn't have won," Reynolds says. In California, lawmakers passed a bill that bans credit-card companies from getting students to sign up for plastic with free gifts, like pizza, T-shirts, or Frisbees, on all public school campuses. But a key provision in the bill that would have required public colleges to disclose credit-card marketing arrangements was considerably weakened before the bill went to Governor Arnold Schwarzenegger. To ensure its passage, the bill's authors added the phrase "with the exception of proprietary information" to the bill. That one change negated the bill's intended transparency, since schools can use the exception to shield critical details of their contracts by citing them as proprietary. "The students are wondering, are we being sold to the highest bidder?" says Chris Vaeth, director of special projects with the Greenlining Institute [greenlining.org], a left-leaning public policy institute that wrote the bill.
credited by: BusinessWeek.com
Sutter locks out nurses at Bay Area hospitals following strike
Sutter Health shut its doors early Friday at five Bay Area hospitals to registered nurses who tried to return to work after a two-day strike.
The nurses work at Alta Bates Summit Medical Center facilities in Berkeley and Oakland, Eden Medical Center in Castro Valley, San Leandro Hospital and Sutter Solano Medical Center in Vallejo. The lockout is expected to continue for up to three days, union officials said.
Officials at Alta Bates Summit Medical Center countered in a prepared statement that Sutter had to sign a five-day contract with replacement nurses to fulfill hospital needs during the strike, so nurses who walked off the job will be called back as needed or welcomed back to work Monday.
The Sacramento-based health system is in contract negotiations with the California Nurses Association/National Nurses Organizing Committee at 13 Sutter hospitals, none in Sacramento. Frustrated by a lack of progress at the bargaining table, the union called a strike Wednesday and Thursday.
"For a corporation that pretends it respects and values RNs, the lockout sends a very different, shameful message of retaliation," Zenei Cortez, a nurse and member of the union council of presidents said in a prepared statement. "It's an insult not only to the nurses, but also to the patients who deserve access to their experienced, qualified RNs."
Sutter leaves contract negotiations to its local affiliates, so it is up to each hospital to decide how to handle strike situations and plans for replacement workers. Contracts with outside agencies differ with need, so some hospitals are bound to keep replacement workers longer than others.
Alta Bates Summit Medical Center has about 1,000 nurses; nearly half stayed on the job this week, hospital officials said in the prepared statement. Replacement nurses and staff filled the gaps Wednesday and Thursday.
The union was informed the week before the strike that any nurses who showed up for work on the first day of the action could work during the five-day replacement period, hospital officials said.
The union is also in contract talks with the Fremont-Rideout Health Group in Marysville and Yuba City, where workers were also locked out Friday, union representatives said.
credited by: http://bizjournals.com
The nurses work at Alta Bates Summit Medical Center facilities in Berkeley and Oakland, Eden Medical Center in Castro Valley, San Leandro Hospital and Sutter Solano Medical Center in Vallejo. The lockout is expected to continue for up to three days, union officials said.
Officials at Alta Bates Summit Medical Center countered in a prepared statement that Sutter had to sign a five-day contract with replacement nurses to fulfill hospital needs during the strike, so nurses who walked off the job will be called back as needed or welcomed back to work Monday.
The Sacramento-based health system is in contract negotiations with the California Nurses Association/National Nurses Organizing Committee at 13 Sutter hospitals, none in Sacramento. Frustrated by a lack of progress at the bargaining table, the union called a strike Wednesday and Thursday.
"For a corporation that pretends it respects and values RNs, the lockout sends a very different, shameful message of retaliation," Zenei Cortez, a nurse and member of the union council of presidents said in a prepared statement. "It's an insult not only to the nurses, but also to the patients who deserve access to their experienced, qualified RNs."
Sutter leaves contract negotiations to its local affiliates, so it is up to each hospital to decide how to handle strike situations and plans for replacement workers. Contracts with outside agencies differ with need, so some hospitals are bound to keep replacement workers longer than others.
Alta Bates Summit Medical Center has about 1,000 nurses; nearly half stayed on the job this week, hospital officials said in the prepared statement. Replacement nurses and staff filled the gaps Wednesday and Thursday.
The union was informed the week before the strike that any nurses who showed up for work on the first day of the action could work during the five-day replacement period, hospital officials said.
The union is also in contract talks with the Fremont-Rideout Health Group in Marysville and Yuba City, where workers were also locked out Friday, union representatives said.
credited by: http://bizjournals.com
Few planes make for growing pains at Virgin
While expanding routes in recent weeks, startup airline Virgin America Inc. canceled flights due to an airplane shortage.
The Burlingame-based carrier said Friday it canceled "a limited number" of flights because of delays in receiving new Airbus A320s and A319s. The planes came later than expected because they had to be modified with Virgin America's computerized entertainment system embedded in each seatback.
The cancellations were most pronounced along Virgin America's transcontinental routes linking San Francisco and New York City and Washington, D.C.
Further cancellations are not expected, said spokeswoman Abby Lunardini.
"We've re-accommodated all of the guests impacted," she said. "We've made every effort to do this as seamlessly as possible for our guests and we appreciate their patience."
Virgin America has 11 planes in its fleet, which will expand to 31 planes a year from now.
After launching Aug. 8 with service between Los Angeles, San Francisco and New York City, Virgin America added service to Washington D.C. Sept. 26 and Las Vegas Oct. 10. The carrier will begin flights between Los Angeles and Washington D.C. Oct. 24.
Service to San Diego and a number of other cities is expected in coming months. The carrier, part owned by British billionaire entrepreneur Richard Branson, said it will serve as many as 10 cities by Aug. 2008.
credited by: bizjournals.com
The Burlingame-based carrier said Friday it canceled "a limited number" of flights because of delays in receiving new Airbus A320s and A319s. The planes came later than expected because they had to be modified with Virgin America's computerized entertainment system embedded in each seatback.
The cancellations were most pronounced along Virgin America's transcontinental routes linking San Francisco and New York City and Washington, D.C.
Further cancellations are not expected, said spokeswoman Abby Lunardini.
"We've re-accommodated all of the guests impacted," she said. "We've made every effort to do this as seamlessly as possible for our guests and we appreciate their patience."
Virgin America has 11 planes in its fleet, which will expand to 31 planes a year from now.
After launching Aug. 8 with service between Los Angeles, San Francisco and New York City, Virgin America added service to Washington D.C. Sept. 26 and Las Vegas Oct. 10. The carrier will begin flights between Los Angeles and Washington D.C. Oct. 24.
Service to San Diego and a number of other cities is expected in coming months. The carrier, part owned by British billionaire entrepreneur Richard Branson, said it will serve as many as 10 cities by Aug. 2008.
credited by: bizjournals.com
Medical tech firm to open Hawaii lab
A Mainland technology solutions firm specializing in health and wellness plans to establish a research and development lab in Hawaii.
San Diego, Calif.-based Medikeeper said Friday it closed on its recent round of funding with Honolulu-based venture capital firm Pacificap.
Medikeeper offers Web-based software centered on improving health and wellness through personal health records management. The company did not say when it planned to open the lab or how many people it would employ.
"Hawaii is an ideal setting for the early deployment of innovative health-care products," said Jeffrey Au, managing director for Pacificap, in a statement. "Pacificap believes that funding Medikeeper's R&D unit in Hawaii is an important step in leveraging Hawaii's competitive advantage and promoting economic diversification."
credited by : bizjournals.com
San Diego, Calif.-based Medikeeper said Friday it closed on its recent round of funding with Honolulu-based venture capital firm Pacificap.
Medikeeper offers Web-based software centered on improving health and wellness through personal health records management. The company did not say when it planned to open the lab or how many people it would employ.
"Hawaii is an ideal setting for the early deployment of innovative health-care products," said Jeffrey Au, managing director for Pacificap, in a statement. "Pacificap believes that funding Medikeeper's R&D unit in Hawaii is an important step in leveraging Hawaii's competitive advantage and promoting economic diversification."
credited by : bizjournals.com
Army Corps awards $134M in contracts
The U.S. Army Corps of Engineers in Honolulu recently awarded military construction and civil works contracts worth $134.65 million. Among them were:
Drum Road Upgrade Phase 2, Helemano Military Reservation, to Kiewit Pacific Co. for $38,031,886.
Repair to Building 123, Fort Shafter, to Alutiiq-Mele LLC for $2,118,339.
Renovate Buildings 1543/1547, Fort Shafter, to Nan Inc. for $3,410,000.
Replace electrical panels Wing D, Tripler Army Medical Center, to Pioneer Contracting Co. for $259,980.
Improve HVAC System 1A, Tripler Army Medical Center, to Pioneer Contracting Co. for $72,519.
Replace ATS-L C1, C2 Circuits, Tripler Army Medical Center, to Pioneer Contracting Co. for $402,480.
Whole Barracks Renewal Phase 2F2, Schofield Barracks, to Nan Inc. dba Ocean House Builders for $18,373,600.
Whole Barracks Renewal Phase 2G, Schofield Barracks, to Nan Inc. dba Ocean House Builders for $37,683,700.
DCGS Intel Squad Ops, Hickam Air Force Base, to Watts Constructors LLC for $13,325,000.
Repair MP HQ Building 3010, Schofield Barracks, to Dawson-DBS JV for $3,173,180.
Repair/install grounding and mooring points, Wheeler Army Airfield, to Hawaii Pacific Concrete & Paving Inc. for $514,170.
Demo Buildings Area 2131, Schofield Barracks, to SNM Builders for $1,072,299.
Repair B405, Fort Shafter, to Pacific Tech Construction for $1,259,046.
Construct Administration Building, Schofield Barracks, Alutiiq-Mele LLC for $571,500.
Repair/expand rear parking lot, Fernandez Hall, Schofield Barracks, to Pacific Tech Construction for $1,800,147.
Renovate B441, Fort Shafter, to Alutiiq-Mele LLC for $798,859.
Repair windows/doors Hangars 111,114, Wheeler Army Airfield, to Nan Inc. for $2,626,100.
Renovate U.S. Army Pacific Conference Rooms Buildings 100/117, Fort Shafter, to Niking Corp. for $911,239.49.
credited by: bizjournals.com
Drum Road Upgrade Phase 2, Helemano Military Reservation, to Kiewit Pacific Co. for $38,031,886.
Repair to Building 123, Fort Shafter, to Alutiiq-Mele LLC for $2,118,339.
Renovate Buildings 1543/1547, Fort Shafter, to Nan Inc. for $3,410,000.
Replace electrical panels Wing D, Tripler Army Medical Center, to Pioneer Contracting Co. for $259,980.
Improve HVAC System 1A, Tripler Army Medical Center, to Pioneer Contracting Co. for $72,519.
Replace ATS-L C1, C2 Circuits, Tripler Army Medical Center, to Pioneer Contracting Co. for $402,480.
Whole Barracks Renewal Phase 2F2, Schofield Barracks, to Nan Inc. dba Ocean House Builders for $18,373,600.
Whole Barracks Renewal Phase 2G, Schofield Barracks, to Nan Inc. dba Ocean House Builders for $37,683,700.
DCGS Intel Squad Ops, Hickam Air Force Base, to Watts Constructors LLC for $13,325,000.
Repair MP HQ Building 3010, Schofield Barracks, to Dawson-DBS JV for $3,173,180.
Repair/install grounding and mooring points, Wheeler Army Airfield, to Hawaii Pacific Concrete & Paving Inc. for $514,170.
Demo Buildings Area 2131, Schofield Barracks, to SNM Builders for $1,072,299.
Repair B405, Fort Shafter, to Pacific Tech Construction for $1,259,046.
Construct Administration Building, Schofield Barracks, Alutiiq-Mele LLC for $571,500.
Repair/expand rear parking lot, Fernandez Hall, Schofield Barracks, to Pacific Tech Construction for $1,800,147.
Renovate B441, Fort Shafter, to Alutiiq-Mele LLC for $798,859.
Repair windows/doors Hangars 111,114, Wheeler Army Airfield, to Nan Inc. for $2,626,100.
Renovate U.S. Army Pacific Conference Rooms Buildings 100/117, Fort Shafter, to Niking Corp. for $911,239.49.
credited by: bizjournals.com
Jamba Juice will open first kiosk
Jamba Juice plans to open its 38th Hawaii store next month.
The smoothie company will open a kiosk operation in the Ala Moana Center's Makai Market food court at the end of November.
The free-standing kiosk will be the first of its kind in Hawaii, but Jamba Juice has several kiosk-type locations on the Mainland.
It will be the second Jamba Juice to open at Ala Moana this year. The company recently opened a store in Sears; its store manager also will manage the kiosk.
The company says it is looking to hire about 30 workers for the new store.
Jamba Juice entered the Hawaii market in 1999 as a joint venture between Jamba Juice Co. of San Francisco and JJC Hawaii LLC.
credited by: bizjournals.com
The smoothie company will open a kiosk operation in the Ala Moana Center's Makai Market food court at the end of November.
The free-standing kiosk will be the first of its kind in Hawaii, but Jamba Juice has several kiosk-type locations on the Mainland.
It will be the second Jamba Juice to open at Ala Moana this year. The company recently opened a store in Sears; its store manager also will manage the kiosk.
The company says it is looking to hire about 30 workers for the new store.
Jamba Juice entered the Hawaii market in 1999 as a joint venture between Jamba Juice Co. of San Francisco and JJC Hawaii LLC.
credited by: bizjournals.com
3 firms honored for hiring disabled
Three Hawaii companies are being recognized for employing Asian Americans and Pacific Islanders with disabilities by the University of Hawaii's Center on Disability Studies.
The companies are:
•Communications Pacific, a public relations and advertising firm based in Honolulu.
•Hale Koa Hotel, a military-owned hotel in Waikiki.
•Kaiser Permanente Hawaii, the state's largest health maintenance organization.
"Over 60 percent of persons with disabilities who are able to work are unemployed," said Robert Stodden, director of the Center on Disability Studies, in a statement. "These companies are changing that."
Stodden said the awards are part of National Disability Employment Awareness Month.
The three companies will be honored at an event Wednesday night at the Honolulu Design Center.
credited by: bizjournals.com
The companies are:
•Communications Pacific, a public relations and advertising firm based in Honolulu.
•Hale Koa Hotel, a military-owned hotel in Waikiki.
•Kaiser Permanente Hawaii, the state's largest health maintenance organization.
"Over 60 percent of persons with disabilities who are able to work are unemployed," said Robert Stodden, director of the Center on Disability Studies, in a statement. "These companies are changing that."
Stodden said the awards are part of National Disability Employment Awareness Month.
The three companies will be honored at an event Wednesday night at the Honolulu Design Center.
credited by: bizjournals.com
Oahu Q3 home prices up, sales down
The prices of Oahu homes and condominiums rose about 3 percent in the third quarter but there were fewer sales, according to a new report.
The median price of a single-family home during the period from July 1 to Sept. 30 was $650,000, according to the September report from Prudential Locations.
That was 2.4 percent higher than the same period in 2006, when the median price was $635,000.
The median price of a condo during the third quarter was $330,000, a 3.3 percent increase over the third quarter of 2006, when the median price was $319,450.
"Our current upward price trend doesn't reflect the dramatic growth we've seen in previous years, but prices are still rising at a healthy and sustainable rate," said Scott Higashi, executive vice president of sales for Prudential Locations.
Sales, however, were down.
There were 934 sales of single-family homes during the third quarter, a 12.5 percent decline from the same period last year, when 1,067 homes sold.
Condo sales fell 13.4 percent during the third quarter to 1,322 units sold, down from 1,526 units sold during the third quarter of last year.
The Prudential Locations report also examined median price trends for single-family homes in 15 Oahu locations during the first nine months of the year. The report found nine neighborhoods that saw increases in prices, while six areas experienced declines when compared to the same period last year.
Leeward Oahu saw the greatest median price increase, an 8.3 percent boost to $379,000, up from $350,000 last year.
Other neighborhoods that saw median prices increases were Manoa, Kaimuki, East Oahu, Mililani, Kailua, West Honolulu, Pearl City-Aiea and Waialae-Kahala.
The neighborhoods that experienced declines in median price were the North Shore, Nuuanu-Makiki, Makakilo, Ewa, Hawaii Kai and Kaneohe.
Credited by: bizjournals.com
The median price of a single-family home during the period from July 1 to Sept. 30 was $650,000, according to the September report from Prudential Locations.
That was 2.4 percent higher than the same period in 2006, when the median price was $635,000.
The median price of a condo during the third quarter was $330,000, a 3.3 percent increase over the third quarter of 2006, when the median price was $319,450.
"Our current upward price trend doesn't reflect the dramatic growth we've seen in previous years, but prices are still rising at a healthy and sustainable rate," said Scott Higashi, executive vice president of sales for Prudential Locations.
Sales, however, were down.
There were 934 sales of single-family homes during the third quarter, a 12.5 percent decline from the same period last year, when 1,067 homes sold.
Condo sales fell 13.4 percent during the third quarter to 1,322 units sold, down from 1,526 units sold during the third quarter of last year.
The Prudential Locations report also examined median price trends for single-family homes in 15 Oahu locations during the first nine months of the year. The report found nine neighborhoods that saw increases in prices, while six areas experienced declines when compared to the same period last year.
Leeward Oahu saw the greatest median price increase, an 8.3 percent boost to $379,000, up from $350,000 last year.
Other neighborhoods that saw median prices increases were Manoa, Kaimuki, East Oahu, Mililani, Kailua, West Honolulu, Pearl City-Aiea and Waialae-Kahala.
The neighborhoods that experienced declines in median price were the North Shore, Nuuanu-Makiki, Makakilo, Ewa, Hawaii Kai and Kaneohe.
Credited by: bizjournals.com
Marcial: This Market Rally Has Legs
The stock market is far smarter than a lot of people think. When the Dow Jones industrial average surged to finish the third quarter with a 487-point gain, or 3.6%, to 13,895.63 -- and then went even higher -- many market watchers and media pundits were in total disbelief. They could attribute it only to what they described as a disconnect between economic reality and the market's optimism. Remember, however, the market has "fooled" a lot of people a lot of times, in both directions. It was just another of those times when the market, for reasons that admittedly are often hard to fathom, decided it liked what it saw ahead, beyond what most people observed.
There is a lot more to this market's advance than some may realize. And be prepared to ride with this rally, allowing for some speed bumps along the way, for the next 6 to 12 months. Some fearless forecasters predict that the Dow will streak to 16,000 and that the Standard & Poor's 500-stock index will go to 1,700 over the next 6 to 12 months. I agree with that forecast. Why? Let me be brief: It's the global economic boom.
The Market Is Over It Already
I'll give you a longer explanation. Through all the turbulence it has endured -- including the deep drop last summer resulting from the credit crisis -- the market returned with renewed vigor on Oct. 9 to score yet another record high. The Dow vaulted 120.8 points, or 0.9%, to 14,164.53 -- its 34th record close in 2007 and the 56th since the start of October, 2006. The S&P advanced nearly 1%, to 1,565.15, and the NASDAQ composite index jumped 0.6%, to 2,803.91.
The media attributed the gains to the Federal Reserve's nonincendiary comments at its Sept. 18 meeting that suggested the U.S. economy wasn't heading toward a recession. The decision by the Fed to cut interest rates in September was based on concerns that the credit turmoil could lead to slower growth at this time of extreme uncertainty. Such a conclusion was gleaned from recent Fed minutes, which also showed that the Fed members avoided language that could have suggested the U.S. economy will contract, as opposed to what some economists have been predicting.
But that was the excuse for the day. The real reason behind the market's continued rally, punctuated by some downswings, stems from its important role as a leading economic indicator. As such, the market has digested and moved beyond what many observers are now focusing on.
There is the disturbing plunge in home sales that has severely pulled down prices; fear that the credit crunch is not yet concluded, as major banks and financial houses are being crimped by huge losses and write-downs because of their involvement in the subprime mortgage mess. And there's more: skyrocketing crude oil prices; softening retail sales and slumping consumer confidence; weak industrial production and manufacturing activity; slowed durable-goods orders; and weakening corporate profits. And there's former Fed chieftain Alan Greenspan warning that the chances of a recession have increased. Of course, there is also the protracted war in Iraq, which is draining hundreds of billions of dollars from the national coffers. That's one big bundle of serious concerns.
No Classic Signs of a Recession
So what's there to be optimistic about, and what's the market suggesting? The market has factored in such fears and concerns early on -- and may do some further readjusting along the way. In the meantime, the market seems able to argue that the worldwide economic expansion is riding high and will benefit not only overseas markets but also U.S. companies that are broadly exposed to foreign markets' growing consumption of goods and services. It is true that the U.S. economy isn't in good fighting shape. But whereas the big worry not too long ago was inflation, now the concern has shifted to the possibility of a recession. Yet here's the good news: The traditional markers of a recession, including a fall in commodity prices, rising unemployment, and unemployment insurance claims, are nowhere to be found. And the subprime problem and its ramifications shouldn't lead to a recession, according to some market watchers.
"The stress in the housing sector alone will not trigger a recession," argues Stanley Nabi, vice-chairman of Silvercrest Asset Management Group in New York. The U.S. economy, he adds, will continue to draw strength from government outlays, capital spending, and increasing exports. An additional and major fillip is the Fed's stance of remaining "friendly," at least until 2008, in terms of managing the direction of interest rates, says Nabi. In sum, the stock market, predicts Nabi, will continue to "plod along irregularly higher even in the face of sluggish growth in the U.S. economy."
Ed Yardeni, president and chief executive officer of Yardeni Research, who has written often about the major economic problems, says he isn't concerned. What could be an issue, he says, is the question of whether the stock market will be able to continue rising into record territory if the financial and transportation groups languish. Financial and transportation, he notes, together account for 28% and 21.8% of the S&P 500's earnings and market-cap shares, respectively. The only way the market can continue advancing, says Yardeni, is if industries and stocks that benefit from the global boom continue to gain earnings and market-cap shares in the S"P 500. "It assumes that the global boom will continue, as I expect," says Yardeni.
Worldwide Growth Stays Strong
With respect to the worldwide economic boom, international experts suggest that the strong pace of growth is continuing. Basically, the robust global economic growth we are witnessing -- from China, India, and Latin America to Europe -- remains intact in spite of the repercussions of the subprime crisis, says Stephen Leeb, president and chief investment officer at Leeb Capital Management, which invests heavily in both U.S. and foreign stocks.
Leeb notes that the International Monetary Fund in a recent report said that its 5% gross world product [GWP] growth forecast through 2008 hasn't been impaired by the credit crisis. The biggest impact of the global boom, says Leeb, is on U.S. companies with investments in foreign markets that aren't yet richly valued. Companies with footprints in the developed economies overseas will be the next batch of growth stocks, he says. This is one major reason why the U.S. stock market and bourses in other parts of the world will continue to rise significantly. Leeb believes the Dow will hit 16,000 in a year and the S&P should rocket to 1,700.
In the U.S. market, the big-cap stocks with vast foreign exposure such as Coca-Cola (KO), Johnson & Johnson (JNJ), Schlumberger (SLB), Boeing (BA), ExxonMobil (XOM), General Electric (GE), and American Express (AXP) will be the big winners over the next few years as the global economic expansion continues, Leeb predicts.
Strategies for Investors
On the other hand, U.S. companies that are mainly dependent on the U.S. economy for their growth will suffer. Retailers, for instance, are among those facing growth difficulties. Another group to avoid, says Leeb: Chinese stocks, including the major companies that trade in the U.S., such as PetroChina (PTR). The sharp rise of stocks in China's stock market is a concern and could affect even the Chinese stocks that trade in the U.S., should the bubble burst in that country.
Sam Stovall, chief investment strategist at Standard & Poor's, recommends investors overweight their portfolios in energy and information technology stocks because he believes they will benefit from above-average earnings growth prospects and international revenue exposure. Consumer discretionary stocks, however, should underperform, he says, as a result of the deteriorating economic environment, continued housing weakness, and high relative valuations. What's Stovall's forecast for the S&P 500? He says S&P's equity analysts, using their 12-month target prices for the companies in the S&P 500 index, project the U.S. large-cap benchmark to advance nearly 12% by the end of September, 2008, near the 1,700 level. [S&P, like BusinessWeek, is a unit of the McGraw-Hill Companies (MHP).]
To ardent market watchers, Oct. 10 is a milestone marking the bull market's fifth birthday. On Oct. 9, 2002, the S&P 500 index closed at a low of 776.76. That ended the bear market, which started on Mar. 24, 2000, that had eliminated 49% of the market's value. Will it crash by the end of its sixth year in 2008? The good news, notes Yardeni, is that while sentiment indicators have turned more bullish, the headlines warn about the soaring stock market amid dark economic news. It could all burst again. As an old Wall Street adage says, a bull market climbs a wall of worries. To that I would add another: Buy on bad news and sell on good news.
Credited by: BUSINESSWEEK.COM
There is a lot more to this market's advance than some may realize. And be prepared to ride with this rally, allowing for some speed bumps along the way, for the next 6 to 12 months. Some fearless forecasters predict that the Dow will streak to 16,000 and that the Standard & Poor's 500-stock index will go to 1,700 over the next 6 to 12 months. I agree with that forecast. Why? Let me be brief: It's the global economic boom.
The Market Is Over It Already
I'll give you a longer explanation. Through all the turbulence it has endured -- including the deep drop last summer resulting from the credit crisis -- the market returned with renewed vigor on Oct. 9 to score yet another record high. The Dow vaulted 120.8 points, or 0.9%, to 14,164.53 -- its 34th record close in 2007 and the 56th since the start of October, 2006. The S&P advanced nearly 1%, to 1,565.15, and the NASDAQ composite index jumped 0.6%, to 2,803.91.
The media attributed the gains to the Federal Reserve's nonincendiary comments at its Sept. 18 meeting that suggested the U.S. economy wasn't heading toward a recession. The decision by the Fed to cut interest rates in September was based on concerns that the credit turmoil could lead to slower growth at this time of extreme uncertainty. Such a conclusion was gleaned from recent Fed minutes, which also showed that the Fed members avoided language that could have suggested the U.S. economy will contract, as opposed to what some economists have been predicting.
But that was the excuse for the day. The real reason behind the market's continued rally, punctuated by some downswings, stems from its important role as a leading economic indicator. As such, the market has digested and moved beyond what many observers are now focusing on.
There is the disturbing plunge in home sales that has severely pulled down prices; fear that the credit crunch is not yet concluded, as major banks and financial houses are being crimped by huge losses and write-downs because of their involvement in the subprime mortgage mess. And there's more: skyrocketing crude oil prices; softening retail sales and slumping consumer confidence; weak industrial production and manufacturing activity; slowed durable-goods orders; and weakening corporate profits. And there's former Fed chieftain Alan Greenspan warning that the chances of a recession have increased. Of course, there is also the protracted war in Iraq, which is draining hundreds of billions of dollars from the national coffers. That's one big bundle of serious concerns.
No Classic Signs of a Recession
So what's there to be optimistic about, and what's the market suggesting? The market has factored in such fears and concerns early on -- and may do some further readjusting along the way. In the meantime, the market seems able to argue that the worldwide economic expansion is riding high and will benefit not only overseas markets but also U.S. companies that are broadly exposed to foreign markets' growing consumption of goods and services. It is true that the U.S. economy isn't in good fighting shape. But whereas the big worry not too long ago was inflation, now the concern has shifted to the possibility of a recession. Yet here's the good news: The traditional markers of a recession, including a fall in commodity prices, rising unemployment, and unemployment insurance claims, are nowhere to be found. And the subprime problem and its ramifications shouldn't lead to a recession, according to some market watchers.
"The stress in the housing sector alone will not trigger a recession," argues Stanley Nabi, vice-chairman of Silvercrest Asset Management Group in New York. The U.S. economy, he adds, will continue to draw strength from government outlays, capital spending, and increasing exports. An additional and major fillip is the Fed's stance of remaining "friendly," at least until 2008, in terms of managing the direction of interest rates, says Nabi. In sum, the stock market, predicts Nabi, will continue to "plod along irregularly higher even in the face of sluggish growth in the U.S. economy."
Ed Yardeni, president and chief executive officer of Yardeni Research, who has written often about the major economic problems, says he isn't concerned. What could be an issue, he says, is the question of whether the stock market will be able to continue rising into record territory if the financial and transportation groups languish. Financial and transportation, he notes, together account for 28% and 21.8% of the S&P 500's earnings and market-cap shares, respectively. The only way the market can continue advancing, says Yardeni, is if industries and stocks that benefit from the global boom continue to gain earnings and market-cap shares in the S"P 500. "It assumes that the global boom will continue, as I expect," says Yardeni.
Worldwide Growth Stays Strong
With respect to the worldwide economic boom, international experts suggest that the strong pace of growth is continuing. Basically, the robust global economic growth we are witnessing -- from China, India, and Latin America to Europe -- remains intact in spite of the repercussions of the subprime crisis, says Stephen Leeb, president and chief investment officer at Leeb Capital Management, which invests heavily in both U.S. and foreign stocks.
Leeb notes that the International Monetary Fund in a recent report said that its 5% gross world product [GWP] growth forecast through 2008 hasn't been impaired by the credit crisis. The biggest impact of the global boom, says Leeb, is on U.S. companies with investments in foreign markets that aren't yet richly valued. Companies with footprints in the developed economies overseas will be the next batch of growth stocks, he says. This is one major reason why the U.S. stock market and bourses in other parts of the world will continue to rise significantly. Leeb believes the Dow will hit 16,000 in a year and the S&P should rocket to 1,700.
In the U.S. market, the big-cap stocks with vast foreign exposure such as Coca-Cola (KO), Johnson & Johnson (JNJ), Schlumberger (SLB), Boeing (BA), ExxonMobil (XOM), General Electric (GE), and American Express (AXP) will be the big winners over the next few years as the global economic expansion continues, Leeb predicts.
Strategies for Investors
On the other hand, U.S. companies that are mainly dependent on the U.S. economy for their growth will suffer. Retailers, for instance, are among those facing growth difficulties. Another group to avoid, says Leeb: Chinese stocks, including the major companies that trade in the U.S., such as PetroChina (PTR). The sharp rise of stocks in China's stock market is a concern and could affect even the Chinese stocks that trade in the U.S., should the bubble burst in that country.
Sam Stovall, chief investment strategist at Standard & Poor's, recommends investors overweight their portfolios in energy and information technology stocks because he believes they will benefit from above-average earnings growth prospects and international revenue exposure. Consumer discretionary stocks, however, should underperform, he says, as a result of the deteriorating economic environment, continued housing weakness, and high relative valuations. What's Stovall's forecast for the S&P 500? He says S&P's equity analysts, using their 12-month target prices for the companies in the S&P 500 index, project the U.S. large-cap benchmark to advance nearly 12% by the end of September, 2008, near the 1,700 level. [S&P, like BusinessWeek, is a unit of the McGraw-Hill Companies (MHP).]
To ardent market watchers, Oct. 10 is a milestone marking the bull market's fifth birthday. On Oct. 9, 2002, the S&P 500 index closed at a low of 776.76. That ended the bear market, which started on Mar. 24, 2000, that had eliminated 49% of the market's value. Will it crash by the end of its sixth year in 2008? The good news, notes Yardeni, is that while sentiment indicators have turned more bullish, the headlines warn about the soaring stock market amid dark economic news. It could all burst again. As an old Wall Street adage says, a bull market climbs a wall of worries. To that I would add another: Buy on bad news and sell on good news.
Credited by: BUSINESSWEEK.COM
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